Canada Stalls, Not Breaks: Economy Shows Resilience Amid Technical Recession

Canada's economy has slipped into a shallow technical recession, but it's not broken. According to recent data, real GDP fell at an annualized rate of 1.0% in Q4 2025 and edged down by another 0.1% in Q1 2026.

The weakness is largely due to temporary factors such as a surge in gold imports and a slowdown in defence spending. However, final domestic demand has been resilient, with consumers acting as the main shock absorber for the economy.

Household spending grew in the first quarter, but it was largely through drawing down savings and leaning on wealth effects from stronger equity markets. The saving rate has fallen to 3.5%, leaving less cushion going forward.

Ashish Dewan CFA, CFP, Senior Investment Strategist at Vanguard Investments Canada, notes that while the economy is in a technical recession, it still looks more stalled than broken. He expects GDP growth to recover somewhat in the second quarter due to stronger energy income and a likely rebound in trade.