Canada's Economy: Stalled But Not Broken

Canada's economy has experienced a shallow technical recession over the turn of the year, with GDP falling at an annualized rate of 1.0% in Q4 2025 and edging down further by 0.1% in Q1 2026.

The weakness is largely attributed to temporary factors such as a surge in gold imports and a slowdown in defence spending, which distorted the output figures.

Final domestic demand has been resilient, with real gross domestic income actually rising due to better terms of trade and stronger energy revenues.

The contraction has been concentrated in trade-exposed sectors and regions, with consumers being the main shock absorber for the economy by drawing down savings and leaning on wealth effects from stronger equity markets.