The latest US tariff threats, covering around 5% of Canadian exports, including plastics, clothing and electrical equipment, will likely weigh on demand for affected goods but will have limited impact on forecasts for the Canadian economy, according to RBC Economics in a note.
Around 0.4% of Canada's gross domestic product and employment would be directly affected, based on 2024 value-added export data, said the bank in a note published on Thursday.
"U.S. tariff policy remains a key source of uncertainty, but economic data in Canada has been strengthening all around," wrote RBC Senior Economist Claire Fan in the note.
Second-quarter real GDP growth is tracking well above expectations, supported by resilient household, business and government spending, a recovery in net trade, stronger housing activity and improving labor-market conditions.
The key question is how much of the momentum in the second quarter will persist. Still, early July data on consumer spending and hours worked support the bank's cautious optimism that the Canadian economy will continue expanding through the rest of 2026, both overall and on a per-person basis.
With economic and labor-market conditions improving, RBC expects the Bank of Canada to remain on hold through this year, with modest rate hikes likely beginning in 2027 as economic slack diminishes.