Stalled Economy: Canada's GDP Growth Slips into Technical Recession

Canada's economy slipped into a technical recession over the turn of the year, but the weakness is less alarming than it seems. The country's GDP fell at a 1.0% annualized pace in Q4 2025 and edged down a further 0.1% in Q1 2026, marking a second consecutive quarterly decline.

The contraction has been shallow, concentrated in trade-exposed sectors and regions, and the data does not suggest a material, broad-based slowdown. Temporary factors such as a surge in gold imports and a temporary slowdown in defence spending distorted output, while final domestic demand has been resilient.

Consumers have been the main shock absorber for the economy, with household spending growing in the first quarter largely through drawing down savings and leaning on wealth effects from stronger equity markets. However, this support is unlikely to be durable, especially with household income growth softening.