Ottawa (Rajeev Sharma): Canada’s provinces are heading into the 2026 budget season in a stronger position than previously expected, buoyed by economic resilience and upward revisions to historical growth data, according to a new analysis from Desjardins Group.
Randall Bartlett, deputy chief economist at Desjardins and co-author of the report released Tuesday, said forecasting remains unusually challenging amid global trade volatility and shifting economic signals.
“It is a much more difficult time to be doing forecasting for any economy, really,” Bartlett said.
Trade Pressures and Tariff Exposure
At this time last year, provincial outlooks appeared far more fragile as U.S. President Donald Trump threatened sweeping tariffs. While sector-specific tariffs have hit industries such as Ontario’s steel and auto manufacturing and Quebec’s aluminum production, broad-based economic fallout has been limited.
An exemption for goods compliant with the Canada-United States-Mexico Agreement (CUSMA) helped cushion the blow, preventing blanket tariffs from inflicting the level of damage initially feared.
However, trade tensions are expected to intensify as the scheduled CUSMA review moves forward this year. Central Canada remains the most exposed, particularly amid recent U.S. scrutiny of Quebec’s aerospace sector.
GDP Revisions Provide Boost
Another factor improving provincial fiscal positions was Statistics Canada’s November revisions to gross domestic product figures for 2022 and 2023. Updated data from the pandemic recovery period lifted prior GDP estimates nationwide.
Bartlett said the revisions eased concerns about stagnating per capita GDP and weak productivity growth, placing provinces on firmer economic footing entering 2026.
“Overall, the provinces, I think, economically have fared better than we had previously expected,” he said.
Regional Variations
The fiscal outlook varies significantly by region:
- British Columbia, which opens budget season this week, along with Saskatchewan and much of Atlantic Canada, is seen as better positioned due to diversified trade portfolios and access to overseas markets via Pacific ports.
- Saskatchewan could benefit from reduced Chinese tariffs on canola, while Maritime provinces and Manitoba may gain from improved seafood and pea exports.
- Oil-producing provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador face potential risks if political changes in Venezuela increase heavy oil supply to U.S. markets, putting downward pressure on Canadian crude prices.
Despite those risks, Alberta often dubbed the Wild Rose province enters 2026 with one of the strongest fiscal positions, aided by cost-cutting measures implemented over the past year.
Budget Prudence Pays Off
Bartlett noted that provinces like Ontario and Quebec built significant fiscal prudence into their 2025 budgets, positioning them for relatively stable updates in the coming weeks despite trade headwinds.
While some provinces may over- or underperform relative to their 2025 projections, Bartlett expects most will land close to their previous fiscal targets, with possible exceptions among energy-producing jurisdictions.
As provinces unveil their budgets in the weeks ahead, the overall picture suggests cautious optimism tempered by trade uncertainty and global commodity volatility.
