The Canadian economy is facing challenges amid the ongoing trade dispute with the United States. However, recent signs suggest that it has managed to avoid a full-blown recession, defying expectations.
Jeremy Kronick, co-chair of the C.D. Howe Institute’s Business Cycle Council, noted that while the Canadian economy is under strain, the current downturn does not meet the technical definition of a recession based on available data. The upcoming GDP figures expected to be released soon are likely to support this assessment.
During the second quarter of this year, the economy contracted by 1.6 percent on an annualized basis. Typically, a recession is identified when the economy shrinks in consecutive quarters. However, analysts anticipate positive growth in July and August, with projections indicating a modest real GDP growth rate of 0.0%-0.5% annualized for the third quarter.
This slight growth can be attributed to exemptions from U.S. tariffs, allowing the majority of Canadian exports to remain unaffected. Various sectors, including manufacturing, wholesale trade, and housing, have shown signs of improvement following the initial contraction earlier this year.
Despite these positive developments, concerns remain about the sustainability of the recovery. Economists emphasize the need for continued growth in the coming months to solidify Canada’s economic position.
While the Bank of Canada recently cut interest rates and the federal government plans increased spending, indicating proactive measures, challenges persist. Regions heavily reliant on trade, such as Windsor, Ont., have seen a rise in unemployment rates due to the global economic restructuring efforts led by U.S. President Donald Trump.
Although economic data reflects some improvements, consumer and business confidence has declined. Employment figures remain a crucial metric to monitor, especially considering the gradual increase in the unemployment rate over recent years.
Looking ahead, experts cautiously anticipate a gradual economic recovery in the latter half of 2026, driven by positive trends in growth, employment, and exports. While uncertainties persist, the overall outlook suggests a potential rebound in the Canadian economy.