Canada experienced a slight economic decline in the first quarter of this year, resulting in a second consecutive quarter of contraction, which some analysts consider 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 follows a revised 1% contraction in the fourth quarter of 2025.
A technical recession occurs when there are two consecutive quarters of economic contraction. While the first quarter GDP remained stable compared to the previous quarter, narrowly avoiding the technical recession definition on a quarter-on-quarter basis.
The annualized GDP figure represents what the GDP would be if the same pace continued throughout the year, while the quarterly figure provides a snapshot of the actual number.
The last time Canada faced a technical recession was during the onset of the pandemic in 2020 and previously during the oil shock in early 2015. BMO chief economist Douglas Porter highlighted the debate surrounding whether the technical recession label is appropriate given the minimal dip in the first quarter, which could potentially be adjusted in the future.
Despite the recent economic challenges, an advance estimate from StatsCan showed growth rebounded in April by 0.4%, offering a glimmer of hope. However, underlying struggles in the economy cannot be overlooked.
Factors contributing to the first quarter’s negative GDP included a rise in imports, partially offset by inventory accumulation. Household spending, particularly on financial services and food, contributed positively to the GDP. Business capital investment declined by 0.7% in the first quarter, marking the fifth consecutive quarterly decrease.
Dan Kelly, president of the Canadian Federation of Independent Business, noted that many small business owners are delaying investments due to economic uncertainty and rising costs. Although there are expectations of interest rate hikes by the Bank of Canada, the recent GDP decline may influence a reassessment of this projection.