08:05 AM EST, 01/20/2026 (MT Newswires) -- Growth in most Canadian provinces has slowed "somewhat," said Scotiabank.

After building up economic momentum over the course of 2024, the Canadian economy slowed in 2025 due to the significant and dynamic trade shocks, as well as reduced immigration inflows, noted the bank.

Although the United States and Chinese tariffs have eased somewhat from initial levels, and most sectors continue to operate on a free-trade basis, the U.S. Section 232 tariffs are a significant headwind on impacted sectors -- steel and aluminum, autos, etc., pointed out Scotiabank.

The burden of these tariffs differs greatly from province to province, with Ontario and Quebec seeing average tariffs of more than 5% on their exports to the U.S., and some other provinces seeing nearly none.

Economic uncertainty is somewhat lower than earlier this year, but continues to weigh on business investment, stated the bank. In particular, the country is bracing for the review of the CUSMA trade accord, which to date has significantly limited the impact of tariffs in most sectors and provinces.

In response to softer economic and labor market data, the Bank of Canada made two 25 basis point cuts in the fall of 2025, and the federal and provincial governments have increased capital spending intentions -- in addition to efforts to remove barriers to major new projects.

These policy measures will provide some support to provincial economies, especially starting in 2027, according to Scotiabank. However, slowing population growth is simultaneously lowering underlying potential growth, especially in the provinces that in recent years saw the highest numbers of international students and other non-permanent resident inflows.

For the Canadian economy as a whole, the bank expects growth to have slowed from 2% in 2024 to around 1.6% last year, and to slow slightly further to 1.5% in 2026, before rebounding to around 2% in 2027. Canada's western provinces are positioned to grow faster than the national average, due to lower effective tariff rates on their export baskets and more resilient population growth in the Prairies.

In contrast, Scotiabank estimates Ontario and Quebec to experience the slowest growth, driven by their deeper higher exposures to tariff and immigration impacts. Meanwhile, the bank predicts Canada's eastern provinces to grow roughly in line with or slightly above the national average, as their lower exposure to tariffs is offset by lower potential growth.