North American Economic Outlook for 2026: Weakening Growth Resilience and Rising Potential Risks

According to Bloomberg, a recent in-depth interview with Michael Dehal, senior portfolio manager at Raymond James' Dehal Investment Partnership, was released, focusing on the economic development prospects and potential risks of Canada and the United States in 2026. Although this interview revealed some positive expectations, it is even more necessary to analyze the hidden uncertain factors with a cautious attitude.

The primary challenge that the Canadian economy will face in 2026 comes from the trade sector. The uncertainty that the United States-Mexico-Canada Agreement (USMCA) will enter the renegotiation stage in August 2026 has become a major source of risk for the Canadian economy. Dehar pointed out that market volatility may intensify during the negotiations. If the agreement fails to be renewed smoothly or there are significant adjustments to its terms, sectors of Canada that are highly dependent on exports to the United States, such as manufacturing and agriculture, will suffer direct impacts. Although the Carney administration is actively expanding trade partnerships with non-US countries such as Asia and the Middle East, it is difficult to fully hedge against the risks brought by fluctuations in the US market in the short term. Furthermore, the government's policy adjustment of reducing immigration quotas may further intensify the tightness in the labor market. Although the unemployment rate has temporarily stabilized due to the increase in part-time jobs, the sluggish growth of full-time employment reflects the problem of insufficient endogenous economic momentum.

Turning to the US economy, Dehar is optimistic about the growth resilience in 2026, but it is necessary to be vigilant about the combined effect of multiple risks. Although tax reduction policies, regulatory relaxation and loose monetary policy provide short-term support, the trend of economic growth deceleration has already emerged. The role of artificial intelligence technology in enhancing productivity is still in its early stages. Corporate profit growth relies more on cost compression rather than revenue expansion, and this model is difficult to sustain stock market valuations. What is more worthy of attention is that the capricious trade policies may undermine enterprises' confidence in long-term investment. If the Trump administration resumes the tariff war or abolishes existing trade agreements, it will force enterprises to reevaluate their supply chain layout, leading to an extension of the capital expenditure cycle and efficiency losses.

There is a risk of deviation between the performance of the labor market and the economic fundamentals. The current low unemployment rate data is partly attributed to the increase in part-time jobs and the decline in the labor force participation rate. The stagnation of full-time job growth reflects the insufficient willingness of enterprises to expand. If the deterioration of the job market resonates with inflationary pressures, the Federal Reserve may be forced to make a difficult choice between economic growth and price stability. The uncertainty regarding the timing and extent of the monetary policy shift will intensify financial market volatility, especially in the real estate and bond markets that are sensitive to interest rates.

From the perspective of regional economic synergy, the deep integration of the industrial chain in North America not only brings about efficiency improvements but also intensifies risk transmission. Canada's exports to the United States account for more than 20% of its GDP. Fluctuations in the US economy will quickly spill over through trade channels. Meanwhile, the financial markets of the two countries have become more interlinked. The adjustment of the US stock market may trigger a reversal of cross-border capital flows, posing a challenge to the financial stability of Canada. The issue of policy coordination mentioned by Dehar is worth deep consideration - although both governments have committed to safeguarding the interests of consumers, there are structural contradictions in areas such as trade negotiations and industrial policies, and the spillover effects of policies may weaken the effectiveness of macroeconomic management.

Overall, the North American economy in 2026 will present a complex pattern of "slowing growth and rising risks". Canada needs to achieve substantive breakthroughs in areas such as trade diversification, housing policy adjustment and labor market reform in order to effectively hedge against external uncertainties. The United States needs to balance short-term stimulus policies with long-term structural reforms to avoid overly loose policies that could trigger asset bubbles. For investors, it is necessary to closely monitor the progress of trade negotiations, central bank policy signals and changes in the quality of corporate profits, and maintain risk awareness and flexibility in asset allocation in an environment of rising volatility. The clarification of the economic outlook still awaits verification by key policy nodes and data. Market participants should adopt a cautious attitude towards potential fluctuations.