Uncertainty around tariffs remains a sticking point for the Canadian economy as 2025 comes to an end. The banking sector has maintained resilience as we close out the year, and gold has continued to rally. The S&P/TSX was one of the strongest indices in the developed market, up nearly 30%1, with sectors such as Materials, and Financials leading the way.
Outlook
| Highlights |
|
Trade deal uncertainty hangs over Canada
Whether or not Canada is able to secure a trade deal with the U.S. will have broad implications for the Canadian economy. 2.3 million Canadian jobs are tied to exports, and a 25% tariff could shrink Canada’s GDP by 2.6%, costing the average Canadian household $1,900 annually.2
During 2025, the uncertainty related to tariffs reduced economic activity in Canada and increased unemployment to 6.9%.3 However, CUSMA is slated for a joint review in July 2026. A favourable outcome will have a positive impact on the Canadian economy, notably the Canadian banking and real estate sectors.
A push to enhance Canada’s economic resilience
In August, Prime Minister Mark Carney passed the “One Canadian Economy Act” that aims to streamline interprovincial trade and fast-track major infrastructure projects designated to be in the “national interest”.
Despite the progress made in the last year, there are still a number of policies that act as barriers to private investment and will therefore need to be changed before we see the capital needed to support these large projects, particularly in the energy sector. They include policies related to environmental regulations and a lack of regulatory certainty around longer-term projects. We believe these will need to be addressed in the new year to move some of the initiatives forward.
Oil demand will be dictated by global economic growth
The oil market has been in surplus since the beginning of 2025, and global oil demand is expected to remain subdued over 2026, as a harsher macroeconomic climate and the electrification of vehicles drive a sharp decline in oil consumption growth.4 In a scenario where 2026 global economic growth remains restrained, we expect to head into another year of oversupply in global oil markets.
Source: The U.S. Energy Information Administration, October 31, 2025
CUSMA’s impact on the Canadian housing market
Although the Bank of Canada has been on a rate-cutting cycle since 2024,
the uncertainty caused by tariffs has impacted the housing market as uncertainty permeates throughout the economy. In the event that the CUSMA review results in a favourable outcome, we expect the stability coupled with lower rates to be supportive of a stronger housing market. However, an unfavourable review will have the opposite effect due to heightened uncertainty, potential job losses and an increase in the costs associated with building materials.5
Tailwinds expected for the Canadian banking sector
Despite ongoing macroeconomic uncertainties, Canada’s Big Six banks enjoyed strong performance in 2025. They were well positioned to withstand the tariff uncertainty and are poised to benefit from more stable conditions when trade deals get finalized. We also expect them to benefit from the pro-growth policies implemented by the Canadian government, which could drive material economic activity. However, Canada’s Big Six banks are valued near historical highs. This, combined with the continued macroeconomic uncertainty leads us to proceed with caution heading into the new year.
Maintaining a positive view of gold
Gold was very strong in 2025, up 48%⁶ and hovering around $4,000. 
This was a key driver of the S&P/TSX’s strong performance for the year. The strength can be attributed to a combination of factors such as the commodity acting as a hedge against inflation, U.S. dollar weakness, increased demand from central banks as they diversify away from the U.S. dollar, economic and geopolitical uncertainty and a decline in real interest rates. We continue to have a constructive view on gold prices over the long term, but expect continued volatility in the short run.
Download the full Empire Life 2026 Market Outlook (PDF).
1 Represents total return in CAD as of November 30, 2025.
2 “The Cost of Canada-U.S. Trade Disruption on Full Display with New Trade Tracker”, chamber.ca/news/thecost-of-canada-u-s-trade-disruption-on-full-display-with-new-trade-tracker, January 14, 2025
3Statistics Canada, as of October 31, 2025
4IEA Oil Market Report, iea.org/reports/oil-market-report-october-2025, October 2025
5“Summer Update: 2025 Housing Market Outlook”, cmhc-schl.gc.ca/observer/2025/summer-update2025-housing-market-outlook, July 24, 2025
6YTD return in CAD as of October 31, 2025.
This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decisions.
Policies are issued by The Empire Life Insurance Company. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. Past performance is no guarantee of future performance.
Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. is the Portfolio Manager of certain Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company.
December 2025
