Canada’s economy, battered by a prolonged trade conflict with the United States, may have narrowly sidestepped a recession, according to early indicators ahead of this week’s GDP release.
The country’s economy contracted by 1.6 per cent in the second quarter, sparking fears of a prolonged downturn. Traditionally, a recession is declared after two consecutive quarters of negative growth. With July and August data set for release, economists expect a small rebound that could keep Canada just above the recession threshold.
“We’re currently projecting third quarter real GDP growth to be in the range of 0.0% to 0.5% annualized,” said Randall Bartlett, deputy chief economist at Desjardins. Even modest growth, he said, suggests resilience in the face of U.S. tariffs and global uncertainty.
Manufacturing, wholesale trade, and vehicle production all picked up during the summer, while the housing market also showed signs of recovery. Avery Shenfeld, chief economist at CIBC, credited tariff exemptions for the fragile rebound: “The fact that we didn’t get hit with a 25 per cent tariff on everything was a welcome relief.”
Still, Shenfeld warned Canada has only dodged a recession “so far.” A renewed decline later this year could still push the economy into one.
The Bank of Canada recently cut interest rates and the federal government is preparing new spending measures in its upcoming budget — steps aimed at stimulating growth. Analysts stress these are not signs of strength but recognition of the ongoing risks.
The unemployment rate remains elevated at 7.1 per cent, up from around 5 per cent in 2022. Regions heavily tied to trade, like Windsor, Ont., are feeling the worst impacts, with local jobless rates reaching 11 per cent.
Nathan Janzen, assistant chief economist at RBC, said while employment and confidence remain weak, conditions may have stabilized. “Things stop getting worse first, and then it takes some time before they start to actually improve,” he noted.
Most forecasts suggest a fragile but positive outlook into 2026, with incremental gains in exports and employment expected. But for now, economists say it is too early to declare a full recovery.
