Canada’s economy saw a slight contraction in the first quarter of this year on an annualized basis, marking the second consecutive quarter of decline, a situation some might term a technical recession. According to Statistics Canada, the real gross domestic product (GDP) dropped by 0.1 percent annually in the initial three months of the year. This follows a revised contraction of one percent in the fourth quarter of 2025.
The term “technical recession” is used to describe two consecutive quarters of economic contraction. While the first quarter GDP remained unchanged compared to the decline in the fourth quarter of the previous year on a quarterly basis, it narrowly avoided meeting the criteria for a technical recession quarter-on-quarter.
The annualized GDP figure amplifies the quarterly figure to project the GDP for the entire year based on the current pace, while the quarterly figure focuses solely on the actual numbers. Canada last experienced a technical recession during the onset of the pandemic in 2020 and earlier during the oil shock in early 2015.
BMO’s chief economist, Douglas Porter, highlighted the debatable nature of applying the technical recession label due to the small dip in the first quarter, suggesting it could be subject to revision. A recent estimate from StatsCan revealed a 0.4 percent growth in April, providing a glimmer of hope amid lingering economic challenges.
Porter emphasized the minimal growth observed over the past year and attributed some of the first quarter’s changes to a significant decline in government spending. He identified the trade war as a primary factor contributing to the economy’s weakness over the past year. The Bank of Canada projects a growth rate of 1.2 percent for this year, down from 1.7 percent in the previous year, with an update expected in July.
Despite challenges, household spending emerged as a positive contributor to the GDP, particularly in financial services and food expenditures. Conversely, business capital investment declined by 0.7 percent in the first quarter of 2026, marking the fifth consecutive quarterly decrease. Dan Kelly, president of the Canadian Federation of Independent Business, noted that many small business owners have postponed investments due to economic uncertainty and rising costs.
Kelly highlighted the cautious approach of businesses awaiting improved economic conditions before investing further. While expectations of interest rate hikes persist in the market, Porter believes that recent GDP data may diminish the likelihood of such actions, especially considering the recent declines in GDP over the past year.