Canada may have met a widely cited benchmark for a recession, but economists say the country’s economic picture is far more complicated and less alarmist than the data suggests.
Statistics Canada reported Friday that national GDP contracted for a second consecutive quarter, a development that formally marks a technical recession, but many economists are pushing back against the label, arguing that the economy doesn’t exhibit the broad-based weakness typically associated with a true recession.
“Economists don’t actually use the label ‘technical recession’ in any serious way,” said Avery Shenfeld, chief economist at CIBC Capital Markets. “You can’t be ‘technically pregnant,’ you either are or you’re not, and that’s also true for recessions.”
Shenfeld noted that a recession is defined as a meaningful decline in real GDP and other major indicators, which he says has not occurred yet. Though he doesn’t believe Canada has met the recession threshold yet, he considers Canada’s economic performance “disappointing.”
“To cure what ails us, we need some relief from current tariffs, greater certainty over U.S. trade policy, and time for major capital projects being promoted by governments to actually get underway,” he said.
Nathan Janzen, assistant chief economist at RBC, said economists typically examine what he calls the “three Ds” — depth, duration and diffusion — rather than two quarters of negative growth. He explained a recession is a significant and sustained decline in economic activity, one that affects multiple indicators such as jobs and spending, persists beyond a short-term fluctuation and is spread across a wide range of industries and sectors.
“There’s also the added complication that this data can all get revised. These are all preliminary reports that undergo significant rounds of revision,” Janzen said, explaining that the technical recession label could be dropped as StatCan receives more data.
Douglas Porter, chief economist at BMO, said the economy has only “just barely qualified” under the technical definition, but warned it could turn out to be a “real” recession in the future.
“There’s no sense sugar-coating this sour result, as the economy has clearly been struggling to grow since the start of the trade war,” Porter said. “Overall, this should really throw a wet blanket on rate-hike talk, as the economy is in no condition to deal with higher rates.”
Still, economists stress that the back-to-back GDP declines are not meaningless.
Robert Kavcic, senior economist at BMO, said the figures act as an important signal that the economy is operating below its potential, a factor central banks and governments will consider when setting monetary and fiscal policy.
“If the economy is struggling, and if there’s kind of a belief that there are some structural headwinds out there, that might argue for fiscal policy being set in a more pro-growth manner, which is what we’re seeing at the federal level too,” Kavcic explained.
The debate has also spilled into federal politics. Conservative Leader Pierre Poilievre narrowed in on the GDP figures last week, arguing that Prime Minister Mark Carney’s policies had pushed Canada into recession territory. Economists, however, have largely cautioned against drawing sweeping conclusions from the technical recession label alone, noting that broader measures of economic activity have yet to show the kind of deterioration associated with a recession.
Kavcic argues Canada has not yet experienced widespread weakness, pointing to the absence of broad job losses, a relatively stable unemployment rate and significant differences in economic performance across provinces and industries.
Janzen said the distinction is important because recession headlines can shape public sentiment, even when the underlying economic picture is more nuanced. Households may pull back spending or become more cautious if they believe the economy is weakening, regardless of whether economists ultimately determine the country is in a recession.
“The name attaching a word to describe the economic backdrop doesn’t actually change any outcomes for households in the here and now,” he said.
“This is really just an arbitrary rough way of labelling these things.”
