Canada’s Economy Is Caught Between Relief and Risk

Canada’s economy is feeling a bit all over the place right now. Inflation has settled down compared with the chaos of the past couple of years, and interest rates are lower than they were. But the picture is still pretty murky because oil prices have jumped, bond yields are climbing again, and the labour market is still weak.

The new tension comes from overseas. Conflict in the Middle East has pushed up energy prices, and that tends to ripple through everything else. Gas prices usually rise fast and fall slowly, so even if markets calm down, Canadians may keep feeling the impact for a while.

At the same time, the job market isn’t exactly giving anyone confidence. Unemployment has come down a little, but that doesn’t necessarily mean things are getting better. Part of the improvement may just be because Canada’s labour force is shrinking as population growth slows.

That population story is a big one. Canada actually lost population in 2025 for the first time ever, and British Columbia saw a decline too. The main reason was fewer non-permanent residents, like international students and temporary workers. That has taken some pressure off housing, but it also means less demand in the broader economy.

In Metro Vancouver, buyers still have the upper hand. There’s plenty of inventory, sales aren’t strong enough to shift the market back to sellers, and condo prices are expected to soften further this year. It’s not a crash, but it is a market that still has some adjusting to do.

Renters are seeing a different kind of shift. Vacancy rates have risen a lot because new rental supply is coming online at the same time as demand is cooling. That’s good news for tenants, but it makes life tougher for new buildings trying to fill units quickly.

Borrowers are changing their habits too. The five-year fixed mortgage, once the standard choice, is losing popularity. More people are choosing shorter fixed terms or variable rates, mostly because they want lower payments today even if it means more uncertainty later.

So the big takeaway is that Canada is in a tricky middle ground. The worst inflation pressures have eased, but new risks are popping up. Growth is soft, the labour market is fragile, and housing is still adjusting. For now, the outlook is less about dramatic change and more about waiting to see how all these forces play out.