TD Economics released its quarterly Canadian forecast this week, and the message is straightforward. Canada is stuck in a holding pattern.

Growth will come in around 0.6% this year on a Q4/Q4 basis, with 2026 looking only marginally better at 1.9%. That's well below the 2.5% to 3% most economists consider normal growth for Canada.

The problem isn't just tariffs or weak business investment or soft consumer spending, though all of those factors matter. The real issue is uncertainty. The CUSMA review is underway, and nobody knows how it ends.

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The CUSMA Cloud

CUSMA is the Canada-United States-Mexico Agreement, the trade deal that replaced NAFTA in 2020. The agreement includes a six-year review clause, which means 2026 is the year all three countries sit down and decide whether to continue, modify, or scrap the deal.

For Canada, that review creates massive uncertainty. Will tariffs stay at current levels? Will they get worse? Could they actually improve?

TD Economics doesn't assume a trade agreement gets reached this year. Their forecast assumes current tariffs and exemptions remain in place throughout the forecast period. That means no substantial export recovery is coming.

Business investment has already responded. Canada has seen three straight quarters of businesses cutting back on investments. Companies aren't willing to commit capital when they don't know what the trade rules will look like next year.

"Canada's outlook has a Charlie Brown cloud hanging over its head with the future of the U.S. trading relationship still undetermined," TD's report states. "We do not expect clarity on U.S. market access or a reduction in tariff rates in 2026."

That's the baseline. But there are scenarios on both sides. If the review goes well and results in a more favorable tariff regime, the dark clouds part and investor sentiment improves. If it goes badly and review periods get shortened from six years to one or two, expect investment to remain frozen.

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What's Actually Happening in the Economy

Canada's Q2 GDP contracted 1.6%, the largest quarterly decline outside of the 2009 financial crisis and the 2020 pandemic. Exports got hammered by U.S. tariffs, pulling the whole economy down.

But consumers held up better than expected. Retail spending stayed resilient, partly because of patriotic spending and partly because Canadians pulled forward auto purchases ahead of tariffs. That boost won't repeat.

The labor market has also defied gravity. The unemployment rate rose steadily from mid-2023, hitting 7.2% in the summer of 2025. Then it improved, dropping to 6.5% by November.

Part of that improvement comes from immigration changes. Canada slashed temporary resident targets for 2026 and 2027. With minimal labor force growth, the unemployment rate doesn't rise as much as it normally would during slow economic growth.

Housing has been a mixed bag. Residential investment held up through mid-year as resale activity picked up after a first-quarter freeze. Robust growth in rental construction kept housing starts elevated. But that momentum faded in Q4 as purpose-built rental construction slowed in October and sales trended sideways since August.

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The Bank of Canada Is Done

TD Economics expects the Bank of Canada to hold its overnight rate at 2.25% for the foreseeable future. Governor Tiff Macklem has made it clear that 2.25% is at the lower end of the neutral range and that monetary policy can't fix structural economic problems.

The Bank cut rates aggressively through 2024 and early 2025, bringing the policy rate down from 5% to 2.25%. That's 275 basis points of stimulus. Further cuts would risk overheating inflation without addressing the real issue, which is trade uncertainty.

"At this point, we think the Bank of Canada is done on the interest cycle," TD's report states. "With the policy rate at 2.25%, it's already at the bottom end of the Bank of Canada's neutral estimate."

Macklem has been unusually prescriptive in forward guidance, noting that economic growth would have to slip below the Bank's already modest 1.1% forecast for them to react with more cuts in 2026. With the federal government stepping up capital investment spending, the central bank doesn't need to do all the heavy lifting.

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What the US Is Doing

While Canada stagnates, the US economy is expected to gain momentum. TD forecasts US growth at 1.8% in 2025, rising to 2.2% in 2026.

Three tailwinds are lifting the US economy. The One Big Beautiful Bill Act (OBBBA) provides fiscal stimulus through tax cuts and accelerated depreciation for business investment. Regulatory reform is reducing compliance costs. And the AI data center boom is driving massive capital expenditure.

AI-related investments drove half the growth in the US economy through the first nine months of 2025. That's not just stock market hype. It's real capital being deployed into data centers, power infrastructure, and semiconductor facilities.

The OBBBA alone could add 0.3 to 0.5 percentage points to US GDP growth in each of the next few years. The bill makes permanent the tax rates from the 2017 Tax Cuts and Jobs Act, increases the child tax credit to $2,200, raises the estate tax exemption to $15 million, and restores 100% bonus depreciation for equipment.

But consumer spending has been losing steam. It grew at just 1.3% through the first nine months of 2025, less than half the 2024 pace. Lower and middle-income earners have pulled back on discretionary spending while higher-income spending remains robust. That's the "K-shaped" recovery economists keep talking about.

The Federal Reserve is expected to lower the federal funds rate to 3.25% in 2026, providing some relief to struggling households. But fixed-term mortgage rates won't drop as much because they track bond yields, which have been rising.

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The Global Picture

Despite all the trade turmoil, global growth is on track for 3.1% in 2025, with only a slight slowdown expected in 2026. That's better than many feared earlier in the year.

Tariffs haven't proven as punitive as the announced rates suggested. Countries negotiated exemptions and deals. Interest rate cuts by global central banks provided a tailwind. And government spending increased in many economies, though not universally.

China outperformed expectations, though investment is now weakening. Eurozone governments are expected to ramp up spending, particularly on defense, but it will take time for that fiscal impulse to show up in the data.

The big picture is that most major central banks have reached the end of rate-cutting cycles. They're now focused on balanced policy against stable inflation rather than aggressive stimulus.

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What This Means for Real Estate

For Canadian real estate, TD's forecast suggests stability rather than volatility.

Interest rates are staying at 2.25%. That's already a significant drop from the 5% peak, and it's as low as rates are going unless the economy falls apart. Buyers have already adjusted to this rate environment. What you see is what you get.

Housing starts have been running ahead of pre-pandemic levels, supported by multifamily construction. Purpose-built rental has been particularly strong. But with building permits trending downward and construction financing getting tighter, that contribution to growth is fading.

Resale activity picked up in mid-2025 after a first-quarter freeze, but sales have been sideways since August. Buyers are cautious. They're qualified and can afford the payments, but they're not rushing. The sense of urgency that drove the pandemic market is gone.

For Kelowna specifically, these national trends filter through in predictable ways. The Okanagan market cooled from its 2021-2022 peaks but didn't crash. Prices adjusted and stabilized. Sales volumes dropped but remain above pre-pandemic norms.

TD's forecast of weak economic growth and stable interest rates means the local market stays in this pattern. No dramatic price increases because growth is weak and buyers are stretched. No crash because rates aren't rising and employment is holding up.

The bigger risk is what happens if the CUSMA review goes badly. If tariffs increase or review periods shorten, business investment stays frozen, which eventually affects employment, which affects housing demand. That's a 2027 problem, not a 2026 problem, but it's worth watching.

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The Upside Scenarios

TD Economics flags two upside risks to their forecast.

First, government spending could deliver more than expected. The federal budget committed $280 billion over five years for infrastructure, productivity measures, defense, and housing. If that money gets deployed effectively and unlocks private investment, growth could surprise to the upside.

TD has been conservative in assuming how much private investment follows government spending. If execution is better than expected, that's 20 to 30 basis points of additional GDP growth in 2026.

Second, the CUSMA review could go better than expected. If the three countries reach an agreement that reduces tariffs or provides long-term certainty, investor sentiment would improve dramatically. Business investment would restart. Export growth would resume. The economy would shift gears.

Neither scenario is in TD's baseline forecast, but both are possible.

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The Immigration Factor

Canada's immigration policy shifted significantly in 2025. The government scaled back already reduced expectations, exclusively within temporary resident targets for 2026 and 2027.

Population growth could drop to near zero in 2026 and 2027, according to TD's analysis. That has major implications for housing demand, labor markets, and economic growth.

Lower immigration means less demand for housing. Fewer renters. Fewer buyers. Less pressure on prices. But it also means slower labor force growth, which limits how much the unemployment rate can rise even with weak economic growth.

For real estate markets, the immigration slowdown removes a key source of demand that drove price appreciation from 2016 through 2023. Markets that relied heavily on immigration and population growth will feel it more than markets with stronger local economic drivers.

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Consumer Resilience Has Limits

Canadian consumers have been more resilient than expected so far in 2025. Patriotic spending helped buffer the hit to confidence. But TD warns that performance gets harder to sustain in 2026.

"The longevity of economic uncertainty takes a toll on consumer confidence and hiring intentions," the report states. Consumer spending is forecast to grow just 1.0% on a Q4/Q4 basis this year before picking up slightly in 2026.

Household saving rates hit 7.1% in Q3 2024, the highest in three years, as people rebuild financial buffers. That's prudent behavior given the economic uncertainty, but it also means less spending driving GDP growth.

The mortgage renewal wave continues. Roughly 1.2 million fixed-rate mortgages are up for renewal in 2025, with 85% originally contracted when the Bank of Canada's rate was 1% or below. Those borrowers face payment increases of 20% on average, with about 10% facing jumps above 40%.

Most households can handle those increases because of stress testing. But it leaves less room for discretionary spending on everything else.

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The Bottom Line

TD's forecast for Canada is underwhelming but not catastrophic. Growth stays below trend through 2026. Interest rates stay at 2.25%. The labor market holds up reasonably well. Inflation stays close to target.

It's not a recession, but it's not prosperity either. It's an economy treading water while waiting for clarity on the US trade relationship.

For real estate, that means more of the same. Prices that are stable or inch up slowly. Sales volumes that are decent but not exciting. Buyers who are qualified but cautious. Sellers who price realistically or sit on the sidelines.

The wild card is CUSMA. If the review goes well, sentiment improves and growth picks up. If it goes badly, uncertainty persists and the economy stays stuck. That uncertainty affects every real estate decision people make, from whether to buy a first home to whether to upgrade or invest in rental property, which makes working with someone who understands both local market conditions and these broader economic forces that much more important, and the team at Coldwell Banker Horizon Realty can help you navigate these decisions with guidance grounded in what's actually happening rather than what might happen if circumstances were different.

TD Economics released its quarterly Canadian forecast this week, and the message is straightforward. Canada is stuck in a holding pattern.

Growth will come in around 0.6% this year on a Q4/Q4 basis, with 2026 looking only marginally better at 1.9%. That's well below the 2.5% to 3% most economists consider normal growth for Canada.

The problem isn't just tariffs or weak business investment or soft consumer spending, though all of those factors matter. The real issue is uncertainty. The CUSMA review is underway, and nobody knows how it ends.