Canada’s economy experienced a slight contraction in the first quarter of the year when measured on an annualized basis, marking the second consecutive quarter of decline, which is commonly referred to as a technical recession. According to Statistics Canada, the real gross domestic product (GDP) decreased by 0.1% on an annualized basis in the first three months of the year. This followed a revised contraction of 1% in the previous quarter of 2025.
A technical recession is defined as two consecutive quarters of economic contraction. However, when considering the quarterly basis, the GDP for the first quarter remained unchanged compared to the decline in the fourth quarter of the previous year, narrowly avoiding the technical recession classification on a quarter-on-quarter basis.
The annualized GDP figure extrapolates the quarterly figure to represent the GDP for the entire year at the same growth rate, while the quarterly figure reflects the actual number for that specific quarter.
The last instances of Canada being in a technical recession were during the onset of the pandemic in 2020 and at the beginning of 2015 due to the oil shock. During these periods, there were consecutive quarters of decline both annually and quarterly, as reported by Statistics Canada.
Economists, including BMO’s chief economist Douglas Porter, debate whether the technical recession label is appropriate given the minimal dip in the first quarter, which could potentially be revised. A recent advance estimate from StatsCan indicated a growth rebound of 0.4% in April, providing a glimmer of hope amidst ongoing economic challenges.
Despite some positive indicators, such as household spending contributing to GDP growth, there are underlying struggles in the economy that cannot be overlooked. Factors such as reduced government spending and declining business capital investments, influenced by economic uncertainty and rising costs, play a significant role in the current economic landscape.
Looking ahead, the Bank of Canada projects a lower growth rate for the year, revising it down to 1.2% from 1.7% the previous year. The impact of various economic factors, including trade tensions and global events like the war on Iran affecting energy prices, continue to shape the economic outlook.
As the discussion around potential rate hikes by the Bank of Canada persists, the recent GDP data may sway these decisions, with experts like Porter suggesting that the recent economic performance makes rate hikes less likely in the near future. Business owners, particularly small enterprises, are cautious in their investments, waiting for more stable economic conditions before committing to growth plans.