Bottom line: With the consumer under pressure, structural improvements to Canada’s growth engine anchored by business investment and exports will be key.

BofC Implications: The Bank of Canada is now in an even tougher spot, given that the economy is underforming on both the jobs and GDP fronts. The current inflation picture is mixed (strong headline, milder core readings), but the price pressures from the War are too strong to ignore. Overall, today’s data on its own should not be enough to move them off the sidelines next month. If anything, it’s a reason to delay an eventual rate hike (we don’t have one penciled in until next year).

What’s next? It’s likely that modest growth will return in the second quarter. Statistics Canada points to a decent 0.4% uptick in April according to its advance reading. Trade is expected to add to growth next quarter, as last quarter’s import surge reverses. Business investment is weak, but is forecast to start adding to growth in line with intentions from the latest BofC survey, while the pullback in government spending is likely temporary. The oil and gas sector will also add more to growth via higher production and an uptick in investment, though not to the same extent as in past price spikes. Our view is status quo on tariffs post CUSMA review, but more clarity on this front will eventually provide a tailwind.

Overall, however, this report points to downside on our Canadian growth forecast for 2026, previously at 1.3% (we’re now recalibrating), but with wide regional disparity. Energy-producing provinces, including Alberta, will outperform.

Powered by AI - “Cautious optimism” about U.S. productivity gains

Are massive investments in Artificial Intelligence (AI) and infrastructure (like data centres) ushering in a new era of high productivity growth? In a recent Federal Reserve article, current economic data does not yet definitively prove the U.S. has entered a high-productivity era. However, the same divergence—where labour productivity spikes while another measure called total factor productivity (TFP) lags—occurred in the mid-1990s, right before the internet boom fully materialized.

The authors offer “cautious optimism” that the economy is in the early, though yet unconfirmed stage, of an AI-driven productivity boom.

As for Canada, we haven’t seen the same build-out in AI infrastructure, but the economy should still see a productivity boost from AI. Let’s hope so, given the perennial productivity growth challenge in Canada (see the chart below).  

Hiring local - Tim Hortons launches new campaign

Tim Hortons said this week it will halt “lobbying for expanded access” to the Temporary Foreign Worker (TFW) program and launch a 10,000-person “local hiring” campaign.

This is something to watch closely, especially if other employers follow suit. Youth unemployment remains a challenge sitting around 14% in recent months. The share of the youth (aged 15-24) population with a job (under 54% last month in Alberta and Canada) is sitting at near record lows outside of COVID.

The campaign is not specifically targeted at youth, but the company referenced youth unemployment in its decision: “In 2026, with high youth unemployment nationally, lobbying for expanded access is no longer necessary. In fact, our restaurant owners’ use of the program has already declined steadily since 2024. We will continue to work within the labour frameworks the federal and provincial governments decide are best for Canada.”

LNG deal - German utility wants Canadian gas

Canada and Germany signed a landmark energy agreement for the sale of Canadian liquefied natural gas (LNG) to Europe.

The gas will be supplied by Ksi Lisims LNG, a proposed $10-billion floating export facility located in Nisga’a Nation territory in northwestern British Columbia.

The buyer is SEFE (Securing Energy for Europe), a German state-owned energy company that was nationalized in 2022 following the energy crisis tied to the war in Ukraine.

SEFE will purchase 1 million tonnes of LNG per year for up to 20 years. Deliveries are expected to begin by the early 2030s. Because the facility is on Canada’s West Coast, the LNG will be loaded onto carriers, shipped down the Pacific, and transported through the Panama Canal to reach Germany.

Why this matters? Getting purchase agreements is a critical step to launching an LNG project. This brings Ksi Lisims one step closer to a final investment decision. Moreover, the majority of current LNG shipments are destined for Asia, and this opens the door to the European market.

Green lights and shovels - Alberta major project update

Our goal is to keep readers up to speed on major projects, and provide updates in our quarterly outlook. There are a couple of noteworthy developments over the past couple weeks: 

• Pembina (Green Light): Pembina sanctioned the $570 million Heartland Extraction Plant (operational late 2029). It will supply 57,500 barrels per day of ethane to anchor Dow’s net-zero Path2Zero petrochemical expansion in Fort Saskatchewan
• De Havilland Field (Shovels): Ground has officially been broken on a massive, 1,500-acre aerospace hub in Wheatland County. It will feature a runway, parts manufacturing, and final assembly lines for iconic Canadian aircraft, including the DHC-515 Firefighter waterbombers recently ordered by the Alberta government.

The above are two examples of industrial diversification. The De Havilland project is part of an emerging aerospace industry that also provides a local supply chain for wildfire defense. In the case of Pembina, it is a classic example of playing off resource strength, turning natural gas into value added products.

Interesting Fact: Denmark wants to be a leader in plant-based protein

While famous for its meat (especially pork) and dairy production, Denmark is making a push into plant-based proteins. In 2023, Denmark launched its Action Plan for Plant-Based Foods. Backed by a €170 million fund, the initiative supports the plant-based food sector from "farm to fork."

It’s not just Denmark. Alberta has also emerged as a player in this space. Proposed projects include:

• PIP International (Lethbridge) | $250M: The proposed expansion of PIP’s facility would enable the processing of 126,000 tonnes of yellow peas annually, making it the largest plant of its kind in the world..
• Phytokana Protein Processing Facility (Strathmore) | $225M: The proposed large-scale pulse fractionation and processing facility would convert fava beans into protein concentrates and high-protein flours.

Chart of the Week: Where are the manufacturing jobs in Canada?

The short answer is Quebec and Ontario, but the landscape has shifted over the last half century, as shown in our Chart of the Week. We go back to 1976, the earliest Labour Force Survey data for manufacturing jobs by province.

Ontario and Quebec remain the manufacturing hubs in Canada, accounting for 71% of Canadian manufacturing employment as of April 2026. But their share of Canadian manufacturing jobs has declined since the 1980s when it was close to 80%.

Ontario manufacturing employment peaked at 1.1 million in the early-2000s, and now sits at around 0.8 million. Digging deeper into the more detailed payroll survey data, a loss in auto sector positions accounts for much of the decline.

Quebec manufacturing employment peaked at 666K in December 2002, and now hovers around 490K. Those losses were particularly deep across wood products and primary metals manufacturing.

Western Canada has increased its share of manufacturing employment since the mid-1980s, particularly Alberta (its share has more than doubled since the early 1980s to around 9% today). Alberta’s manufacturing sector is, in large part, an extension of its resource industry, with most sales coming from food, downstream energy (petrochemicals and refined products) and wood products. There are also upstream linkages, with metal fabricators and machinery manufacturers supplying the resource industries. Recent investment gains have come from food and chemical manufacturing.