Canada: Growth tailwind but lingering output gap – TD Securities

TD Securities’ Robert Both argues that higher Oil prices will support Canada’s 2026 GDP, but export bottlenecks limit the upside. Existing pipelines and potential rail expansion could lift nominal and real GDP modestly, yet the output gap is expected to remain negative into 2027, allowing the BoC to stay on hold through 2026 despite the Oil-driven boost.

Oil boost constrained by export capacity

"Higher energy prices will provide a tailwind to 2026 GDP growth even with ongoing export bottlenecks."

"We estimate spare export capacity at 100-200k bpd in 25Q4, with another 300k bpd from expanded railcar shipments if conditions allow."

"Maxing out existing pipeline infrastructure would contribute $8-9bn to nominal GDP (0.3%) with our baseline view for WTI, with the contribution to real GDP ~0.2% before any downstream effects or fiscal response."

"Increased railcar shipments could lift that to 0.6%/0.4% for nominal/real GDP, but without new export capacity we see limits to the growth tailwind from higher oil prices (TMX pipeline is reported to hit full capacity by April)."

"We look for higher crude oil prices to raise GDP by 0.4pp by Q4 (relative to $65 baseline). However, this still leaves a negative output gap into 2027 which should allow the BoC to remain patiently on the sidelines through 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)