Canada’s economy experienced a slight contraction in the first quarter of this year, with the real gross domestic product declining by 0.1 per cent on an annualized basis. This marks the second consecutive quarter of decline, a situation often referred to as a technical recession. The previous quarter also saw a downwardly revised contraction of one per cent.
While the first quarter GDP remained unchanged compared to the previous quarter on a quarterly basis, narrowly avoiding the technical recession classification, when viewed annually, the figures indicate a slower pace of economic growth. The annualized GDP figure extrapolates the quarterly data to reflect a yearly projection, while the quarterly figure provides a snapshot of the current economic state.
The last time Canada faced a technical recession was at the onset of the pandemic in 2020 and earlier during the oil shock in early 2015. BMO chief economist Douglas Porter highlighted the debate surrounding the technical recession label, noting the minimal dip in the first quarter that could potentially be revised. Despite this, there are clear signs of economic struggle that cannot be overlooked.
Recent data from StatsCan showed a growth rebound in April to 0.4 per cent, offering a glimmer of hope. However, challenges persist in the economy, with government spending and trade tensions playing significant roles in the overall economic performance.
Business capital investment declined by 0.7 per cent in the first quarter of 2026, marking the fifth consecutive quarterly decrease. Small business owners, represented by Dan Kelly, president of the Canadian Federation of Independent Business, have deferred investments due to economic uncertainty and rising costs, including energy prices affected by global events.
Looking ahead, while market expectations previously hinted at potential interest rate hikes by the Bank of Canada, the recent GDP data may influence a reassessment of this outlook. Porter emphasized that the consistent GDP declines over the past year could dampen the case for rate hikes in the near future.