Canada edges toward recession as economy contracts

Canada's economy contracted 0.1 per cent in the first quarter after a 1 per cent decline in the fourth quarter of last year — marking two consecutive quarters of falling GDP and sparking a political debate over whether the country is in recession.

Statistics Canada released the data Friday. While some economists dismiss the term "technical recession," the back-to-back contraction has handed opposition critics political ammunition to attack Prime Minister Mark Carney's economic record. Conservative Leader Pierre Poilievre demanded an emergency parliamentary debate on what he called the "Liberal recession."

Economists at major Canadian banks remain more measured. They say the contraction is small — 0.1 per cent is close enough to zero that revisions could flip it positive — and point to idiosyncratic factors including a drop in government weapons spending after a surge last year and a jump in imports.

"Time will ultimately tell, but data on the ground don't have the markings of a true recession in Canada," Bank of Montreal senior economist Robert Kavcic wrote. The C.D. Howe Institute's Jeremy Kronick said he would likely need to see another quarter of falling GDP and higher unemployment before calling a recession.

What is clear: Canada's economy has stalled through late 2025 and early 2026. Aggressive U.S. trade policy is hammering manufacturers. Uncertainty about the trade agreement's review next month is smothering business investment. The unemployment rate sits at 6.9 per cent and the housing market remains weak, even as Canadian households continue spending at a reasonable pace.

Poilievre argued that around kitchen tables across the country, people already feel like they're in a recession, pointing to job losses, high unemployment, and food-bank use. The government responded that Canadians are experiencing impacts of American tariffs and geopolitical events in real time.