PUBLISHED June 28, 2026
Trade Tensions Continue to Overshadow the Energy Boost
According to National Bank of Canada economists Matthieu Arseneau, Alexandra Ducharme and Daren King, the Canadian economy remains under pressure despite the resource sector’s strong performance, as trade tensions with the United States continue to hold back non-resource exports. While Canada is a net exporter of fossil fuels, this does not necessarily translate into net positive benefits for the economy: rising oil prices support energy sector profits and public finances in the short term, but the incentive to invest remains limited, as current price levels are not seen as sustainable in the medium term — meaning there’s no sign of a significant acceleration in hiring within the sector itself.
Resource Exports Surge, Everything Else Stagnates
The contrast in Canada’s trade data is stark: while resource exports are showing remarkable strength given high prices, non-resource exports have remained sluggish since the changes in the White House. Sectors most dependent on US demand — those where more than 35% of sales go to the United States — have seen their workforce shrink by nearly 2.0% since trade tensions escalated last February. Unsurprisingly, manufacturing has experienced the sharpest decline in employment among all sectors since the tariff disruptions began.
The Worst Start to a Year Since 2009
The damage extends well beyond manufacturing. The sector accounts for only one-third of the 112,000 job losses recorded during the first four months of 2026 — making this the Canadian labour market’s worst start to a year since 2009, excluding the pandemic period. The sectoral breakdown sends an equally worrying signal: only 38% of sectors showed an increase in employment over this period, the lowest diffusion rate observed since 2009.
The decline is particularly pronounced in Quebec, the main driver of national weakness, where employment has contracted by 87,000 since the start of the year — a record outside of the pandemic. Given that the province faces the highest US tariff rates in the country, underperformance was expected, but its magnitude remains notable: only 5 of 16 industries expanded during this period. Statistics Canada data shows that 2.5 million jobs across the country depend directly or indirectly on exports to the United States, representing roughly 12% of total employment, more than half of which sit outside manufacturing entirely.
The decline is particularly pronounced in Quebec, the main driver of national weakness, where employment has contracted by 87,000 since the start of the year — a record outside of the pandemic. Given that the province faces the highest US tariff rates in the country, underperformance was expected, but its magnitude remains notable: only 5 of 16 industries expanded during this period. Statistics Canada data shows that 2.5 million jobs across the country depend directly or indirectly on exports to the United States, representing roughly 12% of total employment, more than half of which sit outside manufacturing entirely.
Canadian households are now facing soaring commodity prices linked to the Middle East conflict, with disruptions in the Strait of Hormuz driving a sharp rise in oil prices that consumers find difficult to avoid. There is reason to believe households are adjusting their consumption choices to offset this loss of purchasing power — a hypothesis supported by retail sales data, where real retail sales growth turned negative in March and April after a strong start to the year, with discretionary spending, particularly in housing-related categories, taking the hardest hit.
Despite the energy shock, underlying inflationary pressures remain remarkably contained in Canada, in stark contrast to the United States. South of the border, inflation reached 7.3% on an annualized three-month basis in April — nearly double the 3.9% pace observed in Canada. The gap widens further when food and energy are excluded: core inflation stands at 3.2% in the US compared to a modest 0.3% in Canada, a divergence National Bank argues makes a strong case for the Bank of Canada to maintain the status quo on rates this year rather than follow the Federal Reserve toward tightening.
National Bank’s baseline scenario projects Canadian GDP growth of 1.0% in 2026, hinging on a renewal of CUSMA — which, while remaining the most likely outcome in their view, is also the single biggest risk to the outlook. The bank notes that US households are clearly frustrated by the erosion of their own purchasing power, with University of Michigan consumer sentiment data showing the worst assessment of current economic conditions since records began — translating into high dissatisfaction with the US president, particularly on inflation and tariffs. With midterm elections approaching, National Bank argues it is unlikely the US administration will impose additional tariffs on its two largest trading partners, a political calculation that may end up doing more to stabilize the Canadian outlook than any domestic policy lever.
Canadian households are now facing soaring commodity prices linked to the Middle East conflict, with disruptions in the Strait of Hormuz driving a sharp rise in oil prices that consumers find difficult to avoid. There is reason to believe households are adjusting their consumption choices to offset this loss of purchasing power — a hypothesis supported by retail sales data, where real retail sales growth turned negative in March and April after a strong start to the year, with discretionary spending, particularly in housing-related categories, taking the hardest hit.
Despite the energy shock, underlying inflationary pressures remain remarkably contained in Canada, in stark contrast to the United States. South of the border, inflation reached 7.3% on an annualized three-month basis in April — nearly double the 3.9% pace observed in Canada. The gap widens further when food and energy are excluded: core inflation stands at 3.2% in the US compared to a modest 0.3% in Canada, a divergence National Bank argues makes a strong case for the Bank of Canada to maintain the status quo on rates this year rather than follow the Federal Reserve toward tightening.
National Bank’s baseline scenario projects Canadian GDP growth of 1.0% in 2026, hinging on a renewal of CUSMA — which, while remaining the most likely outcome in their view, is also the single biggest risk to the outlook. The bank notes that US households are clearly frustrated by the erosion of their own purchasing power, with University of Michigan consumer sentiment data showing the worst assessment of current economic conditions since records began — translating into high dissatisfaction with the US president, particularly on inflation and tariffs. With midterm elections approaching, National Bank argues it is unlikely the US administration will impose additional tariffs on its two largest trading partners, a political calculation that may end up doing more to stabilize the Canadian outlook than any domestic policy lever.
