National Bank of Canada : Fiscal tailwinds (& tariff headwinds)

Published May 7, 2026 at 2:22 p.m. UTC

Source: MarketScreener

Fiscal tailwinds (& tariff headwinds)

By Ethan Curriem, Warren Lovely & Daren King

May 7, 2026 - (Vol. X, No. 54)

The annual release of StatCan's provincial GDP by industry data arrives at a time when geopolitical developments are having outsized effects on select industries-and in Canada's case, select geographies. Last year at this time, we broke down provincial economic diversification (here) with a view to assess tariff-related resilience. Today, tariffs remain topical-especially with the upcoming USMCA review-but regional outlooks have also been sharply recast since the onset of the Middle East war. Combined with acute / targeted damage stemming from U.S. trade protectionism, the oil price shock threatens (promises?) to exacerbate

regional differences in economic and fiscal performance. Economic concentration-often represented by the HHI-has proven itself a reliable indicator of the volatility in provincial growth and finances. Today, traditionally 'diverse' economies may not benefit from budgetary tailwinds to the same degree as resource / oil-levered provinces, and are also likely to continue facing tariff-related headwinds. Others-with less exposure to the manufacturing sector-will remain relatively shielded, assuming USMCA remains intact. To this end, we stress the importance of looking at Canada's tariff exposure through a regional / sectoral lens.

Chart 1: Despite tariffs and pop'l slowdown, growth held up

Real GDP & per capita GDP growth by province, 2025

GDP

Per Capita

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

N&L

PEI

Alta

Sask

GoC

Man

Ont

Que

-0.5

Chart 2: Provincial outlooks set for boost on oil shock Nominal GDP growth planning assumptions vs. latest NBC forecast: 2026 13

"surprise"

Budget planning assumption N (22-Apr-26)

ecast

BC for

otential

9.5

8.8

7.2

5.0

4.7

10.0

4.6

4.5

4.2

4.1

3.7

4.0

4.4

4.0

3.3

3.6

3.5

3.1

3.2

3.4

1.9

-1

Sask

N&L

Alta

GoC

PAvg

Man

PEI

Que

Ont

-2

Source: NBC, StatCan Source: NBC, fed-prov gov'ts | Note: PAvg is weighted; GoC refers to Cda growth

All ten provinces recorded real GDP gains for a second consecutive year in 2025. With immigration slowing, economic resilience (and gov't intervention) allowed most provinces to return to positive per capita growth. Nominal GDP remains the best proxy for own-source revenue. Here, budget planning for the coming year appears conservative, setting the stage for positive fiscal surprises.

Chart 3: Man & Que remain most diversified (per HHI)

Economic concentration (proxied by HHI): 2025 and 5Y average

Normalized HHI, 0 to 100

5Y Avg

2025

N&L

Alta

PEI

Sask

Ont

Man

Chart 4: Measuring economic diversification over time

Economic concentration (proxied by HHI), four largest provinces

Normalized HHI, 0 to 100

Ont

Que BC

Alta

Que

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

Source: NBC, StatCan | Note: Greater HHI values indicate greater industry concentration Source: NBC, StatCan | Note: Greater HHI values indicate greater industry concentration

When it comes to economic diversification (or concentration), HHI values still suggest that Quebec, Manitoba, and Ontario remain the most diversified economies in Canada. Output is distinctly more concentrated in oil-levered provinces (like N&L and Alberta), though outsized exposures to select industries / commodities may be welcomed in today's climate. Read on…

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Economics and Strategy

Chart 5: Using HHIs as a proxy for economic volatility…

Economic concentration (proxied by HHI) vs. real GDP growth volatility

Std dev: Real GDP growth, %-pts

N&L

1.0

R² = 0.94

0.8

Alta

0.6

Ex. R² is based on the relationship between 25-year average provincial HHIs and the volatility (standard deviation) of real GDP growth over the same period

Ont

Sask

0.4

Que

0.2

Man

PEI

0.0

Avg Normalized HHI, 0 to 100

25Y 10Y 5Y 25Y 10Y 5Y 25Y 10Y 5Y 25Y 10Y 5Y

rGDP Growth nGDP Growth Budget Balance Net Debt

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

Source: NBC, StatCan, fed-prov gov'ts | Note: Based on 25Y period from 2001-2025

Chart 6: … works on a fiscal basis too (in a larger sample)

Coefficient of determination (R2) of average HHI vs. economic / fiscal variability

Source: NBC, NBC, StatCan, fed-prov gov'ts | Note: Based on 25Y period from 2001-2025

All else equal, a more concentrated provincial economy tends to exhibit greater economic (growth) volatility. Similarly, higher concentration can generate greater fiscal volatility. These relationships are strongest over the long(er) run (and for larger provinces), and while energy-levered regions may be most 'exposed' per the HHI, that should lend to the largest fiscal tailwinds in today's climate.

Chart 7: Industry exposures top-of-mind (for tariffs and war)

Industry share of provincial GDP (with top 3 largest exposures as of 2025 shown)

Energy

Manufacturing

FIRE

Alta

N&L

Sask

RoC

PEI

Que

Man

RoC

Ont

RoC

Chart 8: Assessing provincial U.S. trade compositions Share of total provincial exports to the U.S., decomposed by sector: 2025 100

Non-Energy

Energy

Alta

PEI

Cda

Que

Ont

Man

Sask

N&L

Source: NBC, StatCan | Note: FIRE refers to finance, insurance & real estate Source: NBC, StatCan | Note: Stacked bar height denotes % of total exports to the U.S.

Energy-oriented provinces are in the spotlight when it comes to the fiscal windfall made possible by this year's crude shock. Those products are also relatively less exposed to U.S. tariffs. Meantime, regions with a larger manufacturing base (particularly Canada's two largest provinces) direct more ex-energy trade south of the border, which has (and will continue to) weigh on growth / employment.

Que Ont

Cda

Man

PEI

Sask

N&L

Alta

Chart 9: Tariff hit and U.S. trade reliance varies by province Exports to U.S. as % of nominal GDP (2025) vs. estimated effective tariff rate 10

Chart 10: Don't be complacent with a 'low' tariff rate

U.S. tariff rate applied to Canadian goods by sector: Latest and Oct-25

Oct-25 Mar-26

1 U.S.

Canada

Mineral

Vehciles,

Iron &

Articles of Aluminum

0 5 10 15 20 25 30 35

AETR

Sector Aggregate

Products (25-27)

Air, Sea (86-89)

Steel (72)

Iron & Steel (73)

& Articles (76)

Source: NBC, StatCan | Note: NBC estimates using 2024 trade weights & latest tariff policies Source: NBC, Bloomberg | Note: Select HS codes presented (HS2 grouping in paratheses)

Though energy-levered provinces tend to have a greater economic reliance on U.S. trade, they're in a relatively favourable spot when it comes to tariffs (thanks to USMCA carveouts). Relatedly, we caution against complacency in regard to Canada's national tariff hit. While customs data reveal a globally favourable tariff rate applied to Canada vs other nations, this gap has narrowed. These data also fail to capture trade that has been shifted (or omitted entirely) as damage sets in. Sectoral exposures-particularly in manufacturing-continuing to see outsized negative impacts.

Table: Providing a more detailed look at provincial industry exposure / economic concentration

Share of provincial GDP by industry, ranking industries from most to least important & highlighting relative concentration / noted exposures: 2025 (%)

	Province >	BC		Alta		Sask		Man		Ont		Que		NB		NS		PEI		N&L
Special agg.	Goods	21.8		41.7		43.0		25.1		20.2		24.8		22.4		18.3		28.0		42.4
	Service	78.2		58.3		57.0		74.9		79.8		75.2		77.6		81.7		72.0		57.6
	Ind prod	11.7		32.5		26.0		14.5		12.9		17.0		12.6		9.3		14.2		34.5
	ICT	5.3		2.8		2.4		3.2		7.0		5.5		3.7		4.2		3.0		2.5
	Energy	5.8		28.1		18.5		4.8		2.5		3.1		4.3		1.7		1.1		23.5
Industry rank, ordered by each province (based on NAICS codes 11-91)	#1	Real est	19.8	Mng,O&G	24.1	Mng,O&G	17.2	Real est	14.1	Real est	14.2	Real est	12.4	Real est	15.2	Real est	18.9	Real est	16.1	Mng,O&G	28.7
	#2	Const	8.9	Real est	11.7	Real est	10.1	Health	10.6	Fin,ins	10.5	Mfg	11.6	Pub admin	11.9	Pub admin	12.2	Mfg	12.6	Real est	10.0
	#3	Health	8.4	Const	8.0	Ag,for,fish	9.2	Mfg	9.3	Mfg	9.0	Health	9.8	Health	11.5	Health	11.1	Pub admin	11.3	Health	9.8
	#4	Prof,sci,tch	8.0	Mfg	6.7	Const	8.0	Pub admin	8.9	Prof,sci,tch	8.3	Pub admin	7.9	Mfg	8.8	Const	7.5	Health	10.9	Pub admin	8.2
	#5	Pub admin	6.0	Health	6.5	Health	8.0	Trans,ware	6.9	Pub admin	7.6	Prof,sci,tch	7.4	Const	7.4	Mfg	6.8	Const	8.5	Const	6.2
	#6	Trans,ware	5.9	Trans,ware	5.5	Pub admin	6.4	Const	6.5	Health	7.3	Const	7.0	Edu	6.2	Edu	6.3	Edu	6.1	Retail	5.3
	#7	Fin,ins	5.5	Prof,sci,tch	5.1	Mfg	6.0	Edu	5.8	Const	6.8	Fin,ins	6.3	Retail	6.2	Retail	6.3	Retail	5.8	Edu	5.1
	#8	Retail	5.2	Pub admin	4.8	Trans,ware	5.0	Fin,ins	5.8	Whole	5.8	Edu	6.2	Fin,ins	5.9	Fin,ins	5.8	Ag,for,fish	5.5	Prof,sci,tch	3.8
	#9	Mfg	5.1	Whole	4.6	Whole	4.8	Retail	5.5	Edu	5.5	Retail	5.4	Trans,ware	4.6	Prof,sci,tch	4.9	Fin,ins	4.1	Trans,ware	3.5
	#10	Edu	4.9	Retail	4.1	Edu	4.6	Ag,for,fish	4.4	Retail	4.5	Whole	5.0	Prof,sci,tch	3.8	Trans,ware	3.4	Prof,sci,tch	3.5	Mfg	3.0
	#11	Mng,O&G	4.4	Fin,ins	4.0	Retail	4.6	Whole	4.3	Trans,ware	4.3	Trans,ware	4.6	Utilities	3.0	Whole	2.9	Accom,food	3.3	Fin,ins	2.9
	#12	Whole	3.1	Edu	3.5	Fin,ins	4.2	Prof,sci,tch	3.5	Info,cult	4.0	Info,cult	2.8	Ag,for,fish	2.8	Info,cult	2.9	Trans,ware	2.7	Utilities	2.6
	#13	Info,cult	3.1	Admin	2.4	Prof,sci,tch	2.7	Utilities	2.8	Admin	3.2	Utilities	2.8	Whole	2.8	Accom,food	2.5	Info,cult	2.0	Whole	2.2
	#14	Accom,food	3.0	Accom,food	2.0	Utilities	2.6	Info,cult	2.5	Accom,food	2.2	Admin	2.5	Info,cult	2.7	Admin	2.0	Oth serv	2.0	Info,cult	2.0
	#15	Admin	2.4	Info,cult	1.8	Info,cult	1.7	Admin	2.1	Utilities	2.1	Mng,O&G	2.2	Accom,food	2.2	Oth serv	1.9	Whole	1.6	Accom,food	1.9
	#16	Oth serv	2.0	Oth serv	1.8	Oth serv	1.7	Mng,O&G	2.1	Oth serv	1.7	Accom,food	2.2	Admin	2.2	Ag,for,fish	1.9	Admin	1.5	Ag,for,fish	1.8
	#17	Utilities	1.9	Ag,for,fish	1.6	Accom,food	1.6	Oth serv	2.0	Mng,O&G	1.3	Oth serv	2.0	Oth serv	1.8	Utilities	1.8	Utilities	1.4	Oth serv	1.6
	#18	Ag,for,fish	1.4	Utilities	1.3	Admin	1.1	Accom,food	2.0	Arts,rec	1.0	Ag,for,fish	1.2	Arts,rec	0.6	Arts,rec	0.5	Arts,rec	1.1	Admin	1.4
	#19	Arts,rec	1.0	Arts,rec	0.7	Arts,rec	0.7	Arts,rec	1.0	Ag,for,fish	1.0	Arts,rec	0.8	Mng,O&G	0.5	Mng,O&G	0.4	Mng,O&G	0.0	Arts,rec	0.3
	#20	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0	Mgmt	0.0
Concentration	Top 3	37.0		43.8		36.5		34.0		33.7		33.8		38.6		42.2		40.0		48.5
	Top 5	51.1		56.9		52.5		49.7		49.5		49.1		54.7		56.5		59.4		62.9
	Top 10	77.6		80.9		79.3		77.7		79.3		79.0		81.4		83.1		84.4		83.5
	HHI	3.6		5.6		3.4		2.6		2.7		2.5		3.5		4.4		4.2		7.9
Select exposures (Top 3)	Ag,for,fish					✓
	Mng,O&G			✓		✓														✓
	Const	✓		✓
	Mfg							✓		✓		✓						✓
	Fin,ins									✓
	Real est	✓		✓		✓		✓		✓		✓		✓		✓		✓		✓
	Prof,sci,tch
	Health	✓						✓				✓		✓		✓				✓
	Pub admin													✓		✓		✓

Source: NBC, StatCan | Note: For spacing purposes, we have used shortforms for 20 two-digit NAICS industry classifications; refer to StatCan for complete NAICS industry details; regarding 'concentration', top 3 to top 10 figures refer to the combined weight of the largest industries in each province; HHI refers to Herfindahl-Hirschman Index value for 2025 (normalized / 0-100), where lower scores imply less economic concentration (i.e., greater diversification across industries) & larger scores imply more economic concentration; regarding 'select exposures', checkmarks are meant to identify specific industries comprising a top 3 share of provincial GDP in 2025.

If you want to study economic diversification (or concentration) in greater detail, the above table details each province's relative economic composition (as at 2025), ranking each of the twenty main industry groups by GDP share. HHI values and some additional visual guides are used to highlight relative diversification and key industry exposures.

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