Canada’s Economy Shrinks for Second Straight Quarter

BY ROBB M. STEWART

OTTAWA—Canada’s economy unexpectedly contracted for a second consecutive quarter as activity stalled at the start of the year, raising the likelihood the country dipped into a recession.

Gross domestic product, a broad measure of goods and services produced across Canada, edged down 0.1% in seasonally adjusted annualized terms in the January-to-March period, Statistics Canada said Friday.

The economy also contracted a larger-than-previously-estimated 1% in the final quarter of last year. Back-to-back quarterly declines typically define a technical recession.

The CD Howe think tank’s Business Cycle Council is the closest Canada has to an official arbiter on declaring a recession, though economists suggest the pullback could prove fleeting because of government stimulus and a tailwind for energy exports from high oil prices.

The country’s economy has struggled to gain momentum since the Trump administration began imposing tariffs as the resulting uncertainty hit manufacturers in Canada hard. The economy has contracted in three of the last five quarters. The last time Canada’s economy compressed in consecutive quarters, outside of the first year of the Covid-19 pandemic, was early in 2015, when oil prices slumped.

The weakness in the first quarter reflected a jump in volatile gold imports, ongoing weakness in business investment and a pullback in government spending on weapons systems after big outlays at the end of 2025. Balancing that, household spending remained positive and business inventories were built back up after big withdrawals in the prior quarter.

Meanwhile, Canada’s population fell for a second quarter running, softening overall demand, but spelling growth for the economy in per capita terms. While the decline in GDP in the latest quarter was muted, it jars against expectations the economy recovered. Economists and the central bank anticipated annualized growth of about 1.5%. The Bank of Canada had projected growth would average about 1.2% in 2026, accelerating to 1.6% the following year with a gradual rise in exports and business investment and as slack in the economy is taken up.

“While there will be plenty of debate over whether this constitutes a recession, we would say ‘no, not really,’ there is little debate that the economy has struggled to make any headway over the past year amid the continuing trade conflict,” said Douglas Porter, chief economist at Bank of Montreal Capital Markets.

Porter said that even if it is a recession only in name, the latest data should dampen any speculation the Bank of Canada will lift interest rates this year after remaining on hold at its last four policy meetings.

Final domestic demand, a gauge of spending by all sectors of the economy and a measure of the health of the economy, fell 0.1% from the prior quarter after expanding 0.7% in the fourth quarter of 2025.

Consumer consumption remained resilient, with household spending up 0.4% from the quarter before thanks to increased outlays on food and financial services. Consumption was tempered by fewer Canadians traveling abroad and a decline in purchases of new vehicles.