Growth forecast to slow from 1.7% in 2025 to 1.2% in 2026 before recovering modestly
Canada’s economy is poised to slow in 2026 as global instability and rising costs ripple through labour markets, creating new pressures for employers managing wages, hiring and retention.
That's according to the latest Economic Outlook from the Organisation for Economic Co-operation and Development (OECD).
“The global economy is now again under pressure,” it said, pointing to higher energy prices, inflation and weakening confidence.
For Canada, growth is forecast to slow from 1.7% in 2025 to 1.2% in 2026 before recovering modestly.
he OECD attributes the slowdown largely to global energy shocks and geopolitical tensions. Under its baseline scenario, global growth slows to 2.8% in 2026. A more severe scenario sees growth fall to 2.1%, with rising unemployment and weaker investment.
In such a downturn, “unemployment would rise and investment… would weaken significantly,” the OECD warns.
The OECD notes that “labour market conditions remained broadly stable… with limited signs of AI-related displacement.” Canadian employment is projected to rise gradually to more than 21 million by 2027, while unemployment is expected to hover just above 6%.
However, momentum is fading. Employment growth across OECD countries is expected to be “relatively subdued in 2026” as economic activity slows.
Despite rising costs and trade challenges, Canadian business sentiment remains resilient. Overall, 66.8% of businesses are optimistic about their outlook over the next 12 months, a proportion similar to levels seen in previous quarters, according to Statistics Canada (StatCan).
Wage growth, inflation pressures
Wages in Canada are still increasing, with average wage rates projected to exceed $78,000 by 2026. But inflation is eroding those gains, says the OECD. “The spike in headline inflation this year will cause real wages to weaken markedly."
This means employees may feel financially stretched despite pay increases, raising risks around engagement and turnover.
Inflation remains a central concern in the OECD outlook. “Higher costs are feeding into inflation pressures, weakening confidence, and weighing on household demand and business activity,” the report states.
Skills shortages still a constraint
Even as growth eases, structural labour challenges persist—particularly around skills. The OECD highlights “a lack of workers with digital skills… emerging as a barrier” to adopting new technologies.
Demand for digitally skilled workers is expected to remain strong, even if overall hiring slows.
The OECD outlook signals a delicate balancing act for Canadian employers: a still-resilient labour market facing rising cost pressures and slowing growth. The organisation emphasizes the need for adaptability, noting that “flexible and agile policies are needed to ensure macroeconomic stability.”
