Canada’s Economy Edges Into A Technical Recession For the First Time Since 2020

Statistics Canada reported this morning that the Canadian economy contracted slightly, by 0.1%, at a seasonally adjusted annual rate in the first quarter (Q1) of 2026. That follows a 1% contraction in the fourth quarter, a downward revision from the previously reported 0.6% decrease.

Higher imports of goods, particularly gold, were offset by accumulations of business inventories. Decreased business and government capital investment was offset by higher household spending, as final domestic demand edged down 0.1%.

On a per capita basis, real GDP increased 0.2% in the first quarter of 2026, as the population declined for a second consecutive quarter and GDP remained unchanged.

The surprise decline in the first quarter stands in contrast with forecasters’ expectations. Economists surveyed by Bloomberg were anticipating a 1.5% annualized increase in the first quarter, aligning with the Bank of Canada’s projection.

The last time Canada recorded two consecutive quarters of negative growth was in 2020 during the COVID-19 pandemic. Before that, it was in 2015 amid low oil prices.
The loonie fell to a session low after the report, trading at C$1.3822 per US dollar as of 8:58 a.m. in Ottawa. Canadian government bond yields dipped to a daily low, extending outperformance versus Treasuries, with the two-year benchmark falling 5 basis points to 2.792%.

The weaker-than-expected GDP data coincides with a looser job market, painting a softer picture of the Canadian economy as US tariffs continue to squeeze some businesses.

Bottom Line

The weaker-than-expected economic activity comes amid sustained political pressure on affordability, driven by a spike in oil prices stemming from the closure of the Strait of Hormuz following the war in Iran. With April inflation data for Canada coming in softer than expected, the Bank is likely on hold for the time being.

A flash estimate for industry-based data in April suggests the economy bounced back with 0.4% growth, driven by increases in mining, quarrying, and oil and gas extraction, as well as in manufacturing, transportation, and warehousing. That followed a 0.1% decline in March.

In direct contrast to the US, Canadian business capital investment in the first quarter posted a fifth consecutive decline, shrinking 3% on an annualized basis, driven by lower spending on engineering structures. In the US, business capital spending is booming, driven by AI-related data centre expenditures.

Business investment in residential structures fell 2.0% in Q1 of this year, following a 2.4% decline in the fourth quarter of 2025. The first-quarter decline was led by continued weakness in resale housing activity (termed “ownership transfer costs”), which fell 9.9% in the first quarter of 2026, following a 3.4% decline in 2025 overall. In the first quarter of 2026, new residential construction edged down 0.1%, led by decreased absorptions (the indicator for sales) of completed units, while work put in place for row homes and apartments increased.

Government capital investment also shrank 9.6% annualized after a sharp increase in weapons-system spending in the fourth quarter. StatCan noted that despite this decrease, the $8.3 billion outlay on weapons systems in the first quarter was still well above the average quarterly spending recorded since 1981.

Household spending increased 1.5% annualized in the first quarter, led by higher spending on financial services. However, the report noted Canadians pulled back on travel and vehicle purchases.

The household saving rate slowed to 3.5%, its lowest level since the first quarter of 2024, as spending rose faster than income.

Meanwhile, corporate income rose for a third consecutive quarter, up 1.6% on a quarterly basis, helping to explain the continued appreciation in stock markets.

Imports surged 12% on an annualized basis, reflecting gold shipments that were offset by accumulations of business inventories.

Exports fell 0.5%, led by a decline in passenger cars and light trucks, which US tariffs have battered. Meanwhile, higher shipments of crude oil and crude bitumen, as well as natural gas, offset much of that decline.

Finally domestic demand fell 0.4%, following a 2.7% increase in the previous quarter.

All in, I expect the Bank of Canada to remain on hold at the June 10th announcement meeting. Next Friday, we will see the May employment report, which is likely to remain tepid, prompting the Governing Council to hold the overnight rate steady at 2.25% for the fourth consecutive time, choosing to look through the short-term impact of higher oil prices on inflation while monitoring softer economic conditions.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Angela Calla is a mortgage renewal and debt elimination expert with over 20 years of industry experience. She is also a multi-award-winning mortgage professional. Since beginning as a mortgage broker in 2004, Angela has helped thousands of Canadians optimize their mortgage strategies, eliminate debt, and build wealth through real estate.

She is the best-selling author of The Mortgage Code, which equips readers with the tools to make informed financial decisions. Additionally, she is the host of Canada’s longest-running finance radio show on CKNW, where she simplifies mortgage advice and empowers listeners to take control of their financial futures.

Angela has been recognized as Business Leader of the Year (2020) by the Tri-Cities Chamber of Commerce and Entrepreneur of the Year (2019) by the City of Port Coquitlam. She is also a sought-after speaker and educator, delivering accredited training for real estate boards across Greater Vancouver.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog.

As someone who has spent more than two decades helping Canadians build wealth through homeownership, I pay close attention to decisions that impact property rights, housing, lending, and consumer confidence.

Today’s Supreme Court of Canada decision provides important clarity regarding Aboriginal title and privately owned land. The Court has upheld a lower court ruling that Aboriginal title cannot be declared over privately owned land, reinforcing a principle that underpins Canada’s housing market, lending system, and broader economy.

This decision is particularly relevant given recent public discussion surrounding the Cowichan Tribes land title ruling in British Columbia, which generated questions and concerns among some homeowners about the security of private property rights.

While legal matters involving Indigenous rights and land claims remain complex and deserve thoughtful consideration, today’s ruling provides reassurance that private property ownership remains a fundamental component of Canada’s legal and economic framework.

For homeowners, investors, and families planning their financial future, certainty and confidence matter. Stable property rights support everything from homeownership and mortgages to retirement planning, investment decisions, and economic growth.

As always, I encourage people to seek information from credible sources and be cautious of misinformation circulating on social media, particularly on topics that can create unnecessary fear or confusion.

Knowledge creates confidence, and confidence creates better financial decisions.

Read the full article HERE

Angela Calla is a mortgage renewal and debt elimination expert with over 20 years of industry experience. She is also a multi-award-winning mortgage professional. Since beginning as a mortgage broker in 2004, Angela has helped thousands of Canadians optimize their mortgage strategies, eliminate debt, and build wealth through real estate.

She is the best-selling author of The Mortgage Code, which equips readers with the tools to make informed financial decisions. Additionally, she is the host of Canada’s longest-running finance radio show on CKNW, where she simplifies mortgage advice and empowers listeners to take control of their financial futures.

Angela has been recognized as Business Leader of the Year (2020) by the Tri-Cities Chamber of Commerce and Entrepreneur of the Year (2019) by the City of Port Coquitlam. She is also a sought-after speaker and educator, delivering accredited training for real estate boards across Greater Vancouver.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog.

Weak Jobs Report in April drives Unemployment Rate Up to 6.9%   Employment in Canada edged down by 17,700 in April, following a 14,000 gain in the prior month, missing the consensus forecast for a 15,000 increase. On a year-over-year basis, employment in April was up by 67,000 (+0.3%), but recorded a net decline of 112,000 (-0.5%) over the first four months of 2026. The result marked a second straight month of limited movement after February’s sharp 84,000-job decline. Full-time employment fell by 47,000, while part-time positions increased by 29,000. Employment levels were broadly unchanged across the private and public sectors and among self-employed workers. Employment varied little across major age groups in April. The unemployment rate rose among youth aged 15 to 24 to 14.3% and among core-aged men to 6.1%. Regionally, employment declined in Quebec, Newfoundland and Labrador, Saskatchewan, and New Brunswick, while Ontario added 42,000 jobs. Meanwhile, the employment rate slipped 0.1 percentage points to 60.5%. Average hourly wages among employees were up 4.5% (+$1.64 to $37.77) on a year-over-year basis in April, following growth of 4.7% in March (not seasonally adjusted).   In April, the unemployment rate rose 0.2 percentage points to 6.9%, as more people searched for work (+51,000; +3.4%). The unemployment rate has increased 0.4 percentage points since January 2026, but remained below the recent peak of 7.1% observed in August and September of 2025. On a year-over-year basis, the unemployment rate was virtually unchanged in April 2026. The proportion of unemployed people who had been continuously searching for work for 27 weeks or more—considered long-term unemployment—was 22.5% in April. This proportion was little changed both in the month and compared with 12 months earlier. However, it remained significantly above the pre-COVID-19 pandemic average of 17.1% observed from 2017 to 2019. At the same time, the monthly layoff rate (0.6%) in April remained in line with the pre-pandemic average, showing no recent elevation (not seasonally adjusted).   The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—rose by 0.1 percentage points to 65.0% in April as more people were in the labour force searching for work. The increase was concentrated among core-aged people, whose labour force participation rate rose 0.3 percentage points to 88.5%. On a year-over-year basis, the overall labour force participation rate was down 0.3 percentage points in April. This largely reflected population aging, which has put downward pressure on the labour supply as more individuals have entered retirement. Among core-aged people, the labour force participation rate was up 0.3 percentage points year over year, while for youth aged 15 to 24, it was little changed. On a month-over-month basis, employment decreases in April were concentrated in information, culture and recreation (-25,000; -2.8%), construction (-16,000; -1.0%), and in ‘other services’ (-13,000; -1.6%), an industry which includes repair and maintenance as well as personal services. Employment change by industry, April 2026   On the other hand, employment increased in business, building and other support services (+22,000; +3.2%), health care and social assistance (+18,000; +0.6%) and in accommodation and food services (+13,000; +1.1%). On a year-over-year basis, employment was little changed across most industries in April, with the notable exception of health care and social assistance, which was up 119,000 (+4.1%) over the period. The cumulative decline in employment since January comes as US tariffs continue to loom over businesses and the war in Iran heightens global uncertainty, two forces expected to shape the Canadian economy this year. With the 50% rise in oil prices, demand destruction is already well underway. Another important fundamental in the labour market is the rapid development of AI, which is already causing enormous layoffs, especially in the U.S. See the chart below.   Bottom Line In other news, the US employment report was also released this morning, showing the strongest two-month gain since 2024. US employers added more jobs than expected for a second month, and the unemployment rate held steady in April, indicating the labour market is holding up despite rising energy costs sparked by the war in Iran. Nonfarm payrolls rose 115,000 last month after an even bigger surge in March, marking the strongest two-month increase since 2024, according to Bureau of Labour Statistics data out Friday. The unemployment rate was unchanged at 4.3%. The report showcases a labour market that may be gaining momentum after near-zero job growth last year. It showed hiring advanced across a variety of sectors, and follows other data indicating layoff activity remains low. The relative weakness of the Canadian labour market will discourage the Bank of Canada from tightening monetary policy too soon. To be sure, inflation remains a risk as higher energy costs become embedded in the price of a wide array of goods and services. The Bank will be reluctant to respond with rate hikes over the next few announcement dates. Trade negotiations will accelerate in the coming months as the future of CUSMA is determined. It is hard to imagine the Bank of Canada tightening in the face of such a weak housing market.   Dr. Sherry Cooper Chief Economist, Dominion Lending Centres drsherrycooper@dominionlending.ca

Angela Calla is a mortgage renewal and debt elimination expert with over 20 years of industry experience. She is also a multi-award-winning mortgage professional. Since beginning as a mortgage broker in 2004, Angela has helped thousands of Canadians optimize their mortgage strategies, eliminate debt, and build wealth through real estate.

She is the best-selling author of The Mortgage Code, which equips readers with the tools to make informed financial decisions. Additionally, she is the host of Canada’s longest-running finance radio show on CKNW, where she simplifies mortgage advice and empowers listeners to take control of their financial futures.

Angela has been recognized as Business Leader of the Year (2020) by the Tri-Cities Chamber of Commerce and Entrepreneur of the Year (2019) by the City of Port Coquitlam. She is also a sought-after speaker and educator, delivering accredited training for real estate boards across Greater Vancouver.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog.