He forecast that both 2025 and 2026 will deliver below-average real GDP growth – 1,2 and 1,4 per cent respectively compared with the long-term norm of about 2 per cent. Weak consumer confidence, cautious business investment, and the lingering effects of global tariffs will keep the recovery subdued.
“While the trade war is hitting a few sectors really hard, most of the economy is soldiering on with modest growth,” he said. “We’re not talking about strong growth – just enough to avoid contraction.”
Porter emphasized that tariffs remain the key uncertainty. “We really haven’t seen the full effect of that yet,” he said, referring to new US duties on Canadian exports of steel, aluminum, autos, lumber, and canola.
Average tariffs on Canadian goods have risen from under 1 per cent to about 6-7 per cent – among the lowest globally but still a major change. “It’s the biggest tariff shock since the Great Depression,” he said, adding that how those tariffs are absorbed across supply chains will determine how deeply they bite into Canadian output.
He said that while some of the cost has been borne by importers and consumers, the uncertainty alone has dampened business sentiment and slowed investment. “Financial markets are shrugging their shoulders,” he added. “They don’t quite know what to make of the trade war”, he said, adding that stocks and bonds are having completely different reactions.
Porter told the IBAO audience that the regional impacts of tariffs have been uneven – and that Ontario and Quebec are carrying the heaviest load.
“It’s quite a different story as you go around the country,” he said. Quebec is getting hit because of aluminum. Ontario because of steel and autos. British Columbia because of timber. Meanwhile, Alberta and Newfoundland have barely been touched, he added.
That geographic divide, he warned, could widen if trade tensions persist into 2026. “These are foundational industries,” he said. “You can’t just replace them overnight.”
The economist added that even as inflation moderates, the combination of weaker manufacturing activity and soft exports will keep Canada’s central provinces under pressure.
Another defining feature of the current cycle, Porter said, is Canada’s dramatic population surge – and the abrupt policy reversal now under way.
“In the years 2022 and 2023 alone, the population was growing by 3 per cent a year – something we hadn’t seen since 1957,” he said. “It was entirely driven by immigration.”
That surge helped offset labour shortages but also intensified housing and infrastructure strains. “Ottawa suddenly realized that 3 per cent population growth was not helping housing affordability – quite the opposite,” Porter said.
The federal government has since “slammed on the brakes,” targeting almost zero growth for two years. Porter views that pause as a correction rather than a long-term shift. “By the late 2020s we’ll likely settle near 1 per cent annual growth – sustainable, but not overheating,” he said.
Labour-market dynamics have flipped dramatically since the post-pandemic boom, Porter said. “Coming out of COVID, we had the tightest job market we’d ever seen – more vacant jobs than unemployed Canadians,” he said.
Now, unemployment has climbed above 7 per cent, with vacancies shrinking. “It’s a soft job market,” he said, “and that’s one reason immigration targets were pulled back – to let the labour market catch up.”
Still, Porter expects some relief ahead as demographics shift. “We are at the very peak of retirements right now,” he said. “That will take pressure off the unemployment rate through 2026.”
He noted that the US jobless rate remains roughly three points lower – around 4 per cent – a level American policymakers consider “almost perfect.” Canada’s higher unemployment underscores the drag from weaker manufacturing provinces and slower productivity growth.
Despite the headwinds, Porter’s message at IBAO was ultimately one of cautious optimism. “No one wins from a trade war,” he said. “But the surprise is how well the global economy, the US, and even Canada have managed through it.”
He credited the technology boom – especially AI-related investment – with sustaining momentum south of the border, indirectly supporting Canadian exports and financial markets.
