Canada's Economy Absorbs Rolling Shocks Without Broad-Based Recession

Canada's economy has been experiencing a prolonged adjustment period, shifting from sector to sector without becoming a broad-based recession. The conventional recession-versus-growth framing is incomplete, as it fails to capture the nature of the current cycle.

The technical recession label is inaccurate because Canada did not experience a classic, synchronized downturn. Instead, the economy has moved through a sequence of adjustments, with rate-sensitive sectors weakening first, population-sensitive sectors adjusting next, and trade-exposed industries now facing ongoing uncertainty.

Rapid population growth initially helped keep aggregate GDP from falling when higher interest rates first hit. However, it also made the economy look healthier than many households and businesses experienced. Now that population growth has slowed, the reverse risk has emerged: headline GDP is weaker than underlying indicators suggest.