Outlook 2027: BMO chief economist discusses ‘mixed picture’
What does 2027 hold for food retailers? If the 2020s have proven anything it’s that the future is, as ever, hard to predict.
“How many people would have said a year ago that the war with Iran would be the dominant economic story of 2026? Probably not many,” BMO’s chief economist Douglas Porter tells Canadian Grocer. “We have to, in some ways, think the unthinkable,”
At GroceryConnex 2026—taking place Nov. 23 in Toronto—Porter will present a grounded perspective on the year ahead for grocery leaders in his keynote address, “Outlook 2027: The Good, The Bad, and The USMCA.” Below, he shares a preview of what’s in-store for attendees.
As we look ahead to 2027, how do you see Ottawa’s strategy to strengthen internal trade and find new markets impacting grocers?
“There are some encouraging developments in terms of diversifying Canada's trade, both within the country and outside of it, and trying to lessen the reliance on the U.S. market. But the reality we've been faced with for the last two years is that it takes time, especially to diversify abroad.
“We’ve seen fits and starts on the internal market. There’s been some signs of improvement, but I wouldn’t count on that coming close to being able to offset losses in the U.S. market. I would also say that’s true with global diversification. There’s a lot of goods that are going to be very tough for Canada to sell to the rest of the world, even if we do have ironclad agreements with other economies."
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What’s your forecast for the Canadian dollar and inflation rates in 2027, and what could that mean for food retail margins?
“The Canadian dollar has been generally soft since the trade war first began to flare in early 2025. The reality is, it has not made a big move. It's not like it's been a friend to the retailers by any means. It has been on the soft side.
“The currency exchange rate ended 2024 above $1.40. It’s going to end up a little bit stronger in 2026 than it was in 2025. It's always been hovering around the high $1.30s. That really is not that different from the average of the last two years.
“In terms of our forecast, our official call is for the Canadian dollar to strengthen a little bit over the next year. We actually see it rising to 75 cents by the end of 2027, but I would stress that that's dependent on what happens with the trade relations with the U.S. That's assuming that things calm down and maybe even improve a little bit over the next year. I have to say that it’s not a foregone conclusion that trade relations with the U.S. will improve.”
How do you see Trump's new tariffs and the general trade uncertainty affecting Canada's business outlook in the coming months and into 2027?
“I believe that most analysts would agree that it could get worse before it gets better. And it's not going to write itself quickly. But I think there's a lot of quiet optimism that this is almost as bad as it gets and things will mildly improve in 2027. But again, I would be cautious about assuming things are going to go back to the pre-trade war situation, that there's going to be sweetness and light between Canada and the U.S.
“We have seen what the president wants to achieve. He is completely serious about imposing tariffs on every country in the world, and especially in things like autos and steel, and that's a tough pill for Canada to swallow. The reason why Canada is the only country that's really fighting back is it's much more important to our economy than other economies. It is technically true that Canada was offered the ‘best deal in the world,’ but trade with the U.S. is a much bigger share of our economy than other economies. So even relatively small tariffs on Canada affect us much more.
“I've been a bit pessimistic on this front for the last two years, and I'm still cautious. I do believe it's a situation where what Canada wants and the U.S. wants are pretty far apart. It's going to be very tough to reach an agreement that sticks.”
READ: Grocery leaders talk counter-tariffs, navigating trade tensions
What are the primary risks and opportunities Canadian food retailers should prepare for heading into 2027?
“Simply put, geopolitical risks are the biggest. Most of the economic issues are actually manageable.
“In terms of opportunities, I actually do believe that some of the biggest challenges we've been dealing with in the last year might actually improve a little bit. So, for instance, I believe energy prices will recede a bit next year. Again, they could get worse before they get better. But I think, one way or another, we'll reach some kind of a stalemate or a resolution in Iran, and that should help bring down energy prices somewhat, which will take a bit of pressure off food prices too.
“On the trade war, like I said I'm quite concerned over the near term, but I do think that it will probably become less of a serious negative for the outlook. I don't think it'll get more uncertain in 2027—at least I hope it doesn't. Some of the biggest challenges that grocers have faced this year might actually improve a little bit in 2027. That's not to say things will get better or a lot better—I'd stay a bit cautious. I just don't think they'll get a whole lot worse.”
Anything else you’d like to add?
“Besides the Canadian dollar and tariffs, we are of course dealing with the more mundane things like food prices, labour costs and crops. I am a bit concerned about how grain prices are starting to trend higher in North America, on top of what's already a bit of a problem with tariffs and diesel prices.
“There is a bit of good news on labour costs. The latest job numbers showed that average hourly earnings in Canada were only at 2% from a year ago, and so wage costs are actually slowing. And of course, that's a big issue for grocers.
“It's a bit of a mixed picture overall.”
