Canada

After delivering a negative final quarter in 2025, the country’s economy flatlined in the first quarter of 2026, raising concerns that the economy had slipped into recession (loosely defined as two consecutive quarters of negative growth). However, more recent economic data has been more positive, with the latest GDP figures for April providing some evidence of an emerging growth trend. The ongoing impact of U.S. tariffs and a generally slowing global economy, continue to take their toll. Employment bounced back in May, adding roughly 88,000 jobs and dropping the unemployment rate down to 6.6% from April’s 6.9%. The rate of inflation continued to punch higher due to rising energy prices in the wake of the U.S.-Iran conflict and the closing of the Straight of Hormuz. While this is expected to diminish over the coming months, it 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 a swoon in March over the conflict in the Middle East, the S&P/TSX Compositive continued to power upwards, buoyed by Canadian banks and material stocks.  

United States

The conflict between the U.S. and Iran pushed energy prices sharply higher in the first few months of the quarter, as oil rose and gas prices at the pumps soared. However, as the conflict has abated and then eventually led to negotiations between the warring parties, oil prices have subsided, providing some hope that energy costs would do the same. The uncertainty brought on by the conflict, and the subsequent sharp rise in inflation, has left consumer sentiment at or near record low levels. Rising inflation has caused new Federal Reserve Chairman Kevin Warsh and the U.S. central bank to pause on any consideration of rate cuts, and even raised the possibility, if the recent increase remains stickier than expected, of interest rate increases by the end of the year. Despite a surprise to the upside in May, June’s employment figures continue 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 and powering the Information Technology sector to a position of dominance in the S&P 500 Index.  

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 Q2 and the rest of 2026. Despite increased spending on defence, Europe’s largest economy, Germany, has, along with most of its peers, struggled to kick start their economy, as they and the rest of Europe continue to struggle under the weight of U.S. trade and tariff policies. Britain’s political volatility reflect the poor showing 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 levels, but are still at a significant discount to valuations seen in the U.S. equity market.

Emerging Markets

After decades of playing supporting roles, emerging 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 even increasing strength in exports, China’s economy is struggling under a lack of domestic demand. Asia’s regional GDP growth is expected to be anchored by a sustained global tech upcycle and AI-related demand. Russia has seen a boon from higher oil prices, but its economy is increasingly feeling the negative impact from its war with Ukraine, while India’s growth has also been clipped due to the surge in oil prices. Emerging Market equities overall continued to perform 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.