Shallow Recession Hits Canada, But Economy Still Looks Stable

Canada's economy has slipped into a shallow technical recession, but it's not as alarming as the headlines suggest. According to recent data, GDP fell at an annualized pace of 1.0% in Q4 2025 and edged down a further 0.1% in Q1 2026.

The weakness is concentrated in trade-exposed sectors and regions, and the data doesn't indicate a broad-based slowdown. Temporary factors, such as a surge in gold imports and a slowdown in defence spending, have distorted output.

Household spending has been the main shock absorber for the economy, with consumers drawing down savings and benefiting from stronger equity markets. However, this support is unlikely to be durable, particularly with household income growth softening.