The Canadian economy is expected to gain momentum in early 2026 after modest growth throughout 2025, according to forecasts from the Canadian Federation of Independent Business (CFIB).
Economic projections, based on December data from CFIB’s monthly Business Barometer, indicate gross domestic product grew 0.6% in the fourth quarter of 2025, following a rebound in the third quarter. Overall GDP growth settled at 1.7% for 2025, up from 1.6% in 2024, and is forecast to accelerate in the first quarter of 2026.
“Overall, GDP growth settled at 1.7% in 2025, up from 1.6% in 2024, and remains relatively resilient given persistent geopolitical tensions and global trade uncertainty,” the report stated.
Retail sales declined in the fourth quarter of 2025, contracting 1.7% on a nominal basis, marking the first decrease following several quarters of slowing growth. Year-over-year growth fell to 1.0%.
The downturn is expected to be temporary, with retail sales forecast to rebound 4.6% in the first quarter of 2026. Despite the late-year slowdown, nominal retail sales growth averaged 3.8% in 2025, surpassing 2024 figures and supported by lower inflationary pressures.
Consumer price index inflation rose to 2.2% year over year in the fourth quarter of 2025 and is expected to edge up slightly to 2.3% in the first quarter of 2026. Core inflation, excluding food and energy, remained stable at 2.5% in the fourth quarter and is expected to fall slightly to 2.3% in early 2026.
With total inflation close to the Bank of Canada’s target, the figures suggest monetary policy has achieved its objective, although inflation dynamics remain sensitive to external shocks.
Private investment steadied in the fourth quarter of 2025, posting modest growth of 0.7%, while lingering uncertainty continues to affect business plans. Investment is expected to recover more significantly in the first quarter of 2026, with growth forecast at 3.5%.
Payroll employment increased 1.0% in the fourth quarter of 2025, following modest growth earlier in the year. Total employment growth for 2025 reached 0.4%. Employment growth is predicted to accelerate to 2.6% in the first quarter of 2026.
The forecasts are based on modelling by AppEco using CFIB’s Business Barometer data.
