Commentary

The Canadian Economic Narrative into 2026

Robert Kavcic

BMO Senior Economist

It’s time to buckle up for the ride into year-end. Here are five areas that figure to feature prominently in the Canadian economic narrative over the coming months:

More interest rate relief still coming: The Bank of Canada’s easing cycle (225 bps through March) has stalled because of stubborn inflation (and tariff pass-through

concerns), a resilient-enough economy and the understanding that policy rates are back in the neutral range. That said, clear slack in the job market keeps further easing in play, with the market now almost fully pricing in a move on September 17 (an important CPI report is still pending). We see scope for 75 bps of further easing through the spring of 2026. That would leave rates at the low end of the neutral range and give the economy a little bit of extra support that it seems to need.

Trade negotiations to ramp up: Canada has scaled back its reciprocal tariffs on U.S. imports, and the USMCA has afforded shelter for most Canadian exports. But that trade agreement will be on the negotiating block over the coming months. Look for

U.S. consultations to begin this month and a briefing to Congress to follow in January, ahead of the joint review by July 2026. And there will no doubt be plenty of colourful verbiage in the meantime. When all is said and done, one probably has to be an optimist to think that Canada will come out tariff-free on the other side, but some certainty with a renegotiated deal would be a good thing.

A highly anticipated federal budget: The federal budget will presumably be tabled in October, and will be a key document for a number of reasons. The Liberals didn’t table a post-election fiscal update; the costed platform has been subject to significant changes since it was published; and, Canada is in the midst of a shift in fiscal policy toward larger deficits, but also a more pro-growth agenda. With various revenue-raising measures shelved (e.g., the DST and tariffs), and defence spending pulled forward, the Parliamentary Budget Officer’s March baseline ($46.8 billion deficit) and the Liberal platform ($62.3 billion) are now underestimating the FY25/26 shortfall. After grinding through the recent announcements, it wouldn’t be surprising to see the deficit jump toward $80 billion, or 2.5% of GDP, versus $48 billion last estimated for FY24/25.

Mortgage renewal wave will crest: There are roughly 1.8 million Canadian mortgages set to renew over the coming 12 months. Payment increases will vary depending on mortgage terms, but the vintage of 5-year fixed rate mortgages taken out at the interest-rate lows of 2020/21, are most exposed. Bank of Canada work suggests that payment increases will run at around 20% for those holders, and less for others. More broadly, with mortgage rates down around the 4% mark, many mortgage holders working proactively with their lender, most borrowers stress-tested at 5.25%, and real incomes still rising, the impact of this renewal wave should prove to be manageable.

Job market concerns continue: The job market tends to lag the economy (e.g., the unemployment rate is your classic lagging indicator), so the softness there is expected to persist. We currently see the unemployment rate peaking at 7.3% around the turn of the year. Demand has flattened, the youth/lower-skill markets are still swamped with supply, and the employment rate is plumbing 25-year lows (ex-pandemic). We could see more of the same in the coming months before conditions improve in 2026.

The volume turns down on... Inflation; housing supply shortages; 'buy Canadian'.

Average Hourly Wages eases to +3.2% y/y (Aug.)—little pass-through effects to inflation; Merchandise Trade Deficit narrowed to $4.9 bln (July); S&P Global Manufacturing PMI +2.2 pts to 48.3 (Aug.).

‘Legend dairy’ man carries ice cream and dry ice up Colorado peak as treat for other hikers

DENVER (AP) — Hikers who climbed a Colorado mountain got more than just a sweeping view at the top. A man in an ice cream cone costume unexpectedly was handing out frozen treats.

No one seemed to know the man who carried ice cream sandwiches and bars and dry ice in a 60-pound (27-kilogram) pack up Huron Peak over the Labor Day weekend. But word of him spread quickly to hikers still making their way up the more than 14,000-foot (4,267-meter) mountain that’s one of Colorado’s tallest.

Blaine and Katie Griffin were about three-quarters of the way up Huron Peak when other hikers told them about the man. They worried he would run out of ice cream by the time they got there.

“Eventually we got up to the top of the mountain and, tired, hot, thirsty and didn’t know it, but ice cream was just kind of what we wanted,” Blaine Griffin said.

He and his wife enjoyed their ice cream sandwiches, which still were surprisingly very cold, with some leftover pizza they carried with them.

Christopher Whitestone said his two children, Olivia, 11, and Owen, 8, went straight to the ice cream man as soon as they reached the top of the mountain, considered a relatively moderate climb among Colorado’s more than 50 peaks over 14,000 feet.

“It definitely leaves a lasting impression for my kids as a very positive experience,” Whitestone said.

But he warned them not to expect that every time they climb a mountain.

Photos on social media show the man in a camping chair, a beer nestled in the armrest, wearing sunglasses with a fake mustache attached to it. Members of a Facebook group for people dedicated to climbing the state’s “14ers” called him a hero, with one declaring him “legend dairy.”

Some also marveled at his ability to climb the mountain with such a heavy pack at elevations where the thin air can make it hard to carry just your own body up.

Blaine Griffin said the man later zoomed past them on the way down the mountain, this time without his costume, making him think he had climbed it many times.

The ice cream had just run out by the time Ric and Sara Rosenkranz of Las Vegas made it to the top. But Ric Rosenkranz said he was just happy to be able to witness the quirky stunt, which he said was a good antidote to the tendency to focus on racking up achievements in the outdoors.

“He provided a nice reminder of just enjoying the moment,” Rosenkranz said, “just really making it fun, not taking it more seriously than it needs to be and just spending time with his fellow hikers.”