Canada's Recession Risk Hinges on Labour Market Outcomes

Canada's economy is facing challenges, but panic among investors would be premature according to BeiChen Lin, director and head of Canadian investment strategy at Russell Investments. The global picture remains broadly positive despite external threats like the war in the Middle East, with the US economy proving resilient.

However, Canada has taken a harder hit, with volatile economic data causing growth numbers to swing between positive and negative. In fact, Canada recently entered a technical recession in the first quarter of 2026, although this may be revised.

The labour market will play a crucial role in determining whether Canada's economy is heading towards a full-blown recession. If the unemployment rate holds at 6.6 per cent, the situation remains manageable, but if it climbs back above seven per cent, Lin expects more serious recession concerns to emerge among investors.

Interestingly, even in a scenario where Canadian growth stays weak, Canadian equities could still finish the year higher than their current levels, provided the US economy continues to perform well.