Canada's Economy Stalls Amid Temporary Factors

Canada's economy has entered a technical recession due to a shallow decline in GDP growth. Recent data shows that real GDP fell at an annualized rate of 1.0% in Q4 2025 and edged down further by 0.1% in Q1 2026.

The weakness is mainly attributed to temporary factors such as a surge in gold imports, a slowdown in defence spending, and sectoral tariffs. These distortions have overestimated the economic weakness, with final domestic demand remaining resilient.

Consumers have been the main shock absorber for the economy, but their support may not be durable. Household income growth has softened, and higher gasoline prices are expected to erode purchasing power. The burden is particularly heavy for lower-income households, which should benefit from government support packages.