Canada

After posting negative growth in the final quarter of 2025, the country’s economy flatlined in the first quarter of 2026, raising concerns that it had slipped into recession (loosely defined as two consecutive quarters of negative growth). However, recent economic data has been more positive, with the latest GDP figures for April and projections for May providing some evidence of an emerging upward trend, despite the toll of U.S. tariffs and a generally slowing global economy. Employment bounced back in May and June, adding roughly 88,000 and 18,000 jobs, respectively, and dropping the unemployment rate down to 6.5% to end the first half. The rate of inflation moved higher through the spring, mostly due to rising energy prices in the wake of the U.S.-Iran conflict and the closing of the Strait of Hormuz. However, it eased as the conflict subsided over May and June, and a negotiated settlement was achieved, bringing the Consumer Price Index (CPI) down to 2.8% in June, though energy prices have since surged higher as the fighting in the Middle East has escalated again. The uncertainty has pushed the Bank of Canada to the sidelines as it awaits further data to establish the path for interest rates in the coming months. Despite its March swoon, the S&P/TSX Composite moved higher over the quarter, driven by Canadian banks, infrastructure and material stocks.         

United States

The U.S.-Iran conflict pushed energy prices sharply higher in March and into the first few months of the quarter, as oil shot higher and gas prices soared at the pumps. As the conflict subsided and led to negotiations between the warring parties, oil prices fell, driving energy costs back down. However, in recent days the conflict has flared up once more, generating further uncertainty and pushing energy prices sharply higher once again. Rising energy costs caused inflation to surge, forcing new Chairman Kevin Warsh and the U.S. Federal Reserve to pause on any consideration of rate cuts. However, while the cessation in hostilities brought a brief respite, oil prices have since resurged as the conflict has reignited, leading to the possibility that the central bank may even have to raise rates in the months ahead if inflation once again moves sharply higher. Despite a surprise to the upside in May, June’s employment figures, although positive, continued to show that the U.S. labour market remains under stress, and that the months ahead will likely see only moderate growth for the world’s largest economy. In the meantime, U.S. equity markets continued to rise on the back of massive AI and AI-related spending, with expectations that this will materialize into ongoing profit growth in the months and years ahead.

Europe

The region’s economies continue to grapple with the sharp rise in energy costs, further exacerbating concerns over economic growth in the months ahead. Eurozone GDP shrank 0.2% in the first quarter of the year, and with the sharp rise in energy costs, the region is expected to see much the same for the second quarter and the rest of 2026. Despite a massive increase in spending on defence, Germany, Europe’s largest economy, has struggled to kick start their economy, a challenge shared with most of its peers, as the region continues to struggle under the weight of U.S. trade and tariff policies. Britain’s political volatility reflects the poor display of its economy, with labour markets also showing strain as job openings fall and wages stagnate. European markets have fared decently so far this year, and despite the macroeconomic uncertainties, the near-term earnings environment for European equities remains surprisingly robust. Equity valuations have retraced downwards in Europe since the start of the Iran war (despite earnings moving upwards) and sit in line with the 20-year median level, but are still at a significant discount to valuations seen in the U.S. equity market.

Asia and the Emerging Markets

After decades of playing supporting roles, emerging market (EM) economies are learning to fly independently, powered by rising domestic demand, deepening economic integration, and growing financial autonomy. However, many of these countries face short-term headwinds, with energy price-inflation and shortages of energy products causing widespread economic pain. Asia's macroeconomic outlook for the next 12 months reflects a transition toward moderate growth amid persistent energy shocks. Despite continued and increasing strength in exports, China’s economy is struggling under a lack of domestic demand, with the country reporting its slowest GDP growth in years in Q2. Asia’s regional GDP growth is expected to be anchored by a sustained global tech upcycle and AI-related demand. Russia initially saw a boon from higher oil prices, but its economy is increasingly revealing the negative impact of its war with Ukraine, while India’s growth has also been clipped due to the surge in oil prices. Overall, EM equities have performed well relative to their developed market peers, and continue to provide relative value given sharply higher valuations across North American markets.    

For more information and insights, please refer to RBC Global Asset Management’s Global Investment Outlook – Summer 2026.