Are we in a recession?

Canada's economy came to a virtual standstill in the first quarter of 2026, with real gross domestic product holding flat after a 0.2% decline in the previous quarter, according to Statistics Canada.

The stagnation was driven largely by a surge in imports and falling business and government investment, though stronger household spending offered a modest counterweight.

Imports rose 2.9% in the first quarter, with roughly half of that increase tied to gold imports in the form of intermediate metal products and scrap metal. Exports, meanwhile, edged down 0.1%, weighed down by declining shipments of passenger cars and light trucks — a sector that has been directly impacted by U.S. tariffs. Increased exports of crude oil and natural gas offset some of that loss.

On a per capita basis, the picture was slightly more encouraging. Statistics Canada notes that real GDP actually rose 0.2% in the first quarter, as Canada's population declined for a second consecutive quarter.

Technically, it’s a recession

Converting the quarterly figure to an annualized rate — the measure most economists pay closest attention to — results in a decline of 0.1%, according to CTV News. That follows a revised annualized drop of one per cent in the fourth quarter of 2025, meaning three of the last four quarters have now posted negative real GDP growth.

Heading into Friday's release, the consensus among economists had called for annualized growth of 1.5%, it reports.

With GDP contracting in the fourth quarter of 2025 and flatlining in the first quarter of 2026, Canada has now entered what economists define as a technical recession — two consecutive quarters of zero or negative growth.

However, CTV News notes that many economists also gauge the breadth and depth of a downturn before declaring a formal recession, and the picture remains mixed. Statistics Canada's monthly GDP figures, which use slightly different data sources and methodology, suggest mild positive growth in the first quarter — adding to uncertainty about the economy's true trajectory.

Investment continues to slide

Business capital investment fell 0.7% in the first quarter — its fifth consecutive quarterly decline, according to Statistics Canada. The drop was led by a 4.6% decrease in spending on engineering structures, partially offset by gains in machinery and equipment, mineral exploration, and software. Residential investment also slipped, falling 2.0%, with resale housing activity dropping nearly 10% in the quarter.

Government capital investment fell 2.5%, Statistics Canada reports, largely due to a pullback in weapons systems spending following a surge at the end of 2025.

Despite the decline, government spending on weapons systems in the first quarter — at $8.3 billion seasonally adjusted at annual rates — remained well above the historical quarterly average of $1.7 billion recorded since 1981.

Corporate profits and wages rise

Not all the news was grim. Corporate incomes grew 1.6% in the first quarter, marking a third consecutive quarter of growth, driven largely by rising energy prices, according to Statistics Canada. Financial corporations saw operating surplus jump 6.1%, fuelled by investment services and fee income.

Employee compensation also grew broadly, with gains recorded in every province and territory. Professional and personal services led the way at 2.0%, followed by health care and social assistance at 1.7%. Federal government public administration was the notable exception, posting a 3.3% decline.

Statistics Canada reports that while compensation of employees grew 1.2% in the quarter, gains were partially offset by declines in self-employment income, investment income, and government transfers.

There may be reason for cautious optimism ahead. Statistics Canada's early estimate for April points to a sharp rebound, with real GDP growing 0.4% in the month as the mining, quarrying, oil and gas sectors returned to growth, according to CTV News. Those figures are expected to be revised next month.

Statistics Canada will release second quarter GDP figures on August 28.