Canada's economy experienced a minor contraction in the first quarter of 2026, shrinking at an annualized rate of 0.1 per cent, according to Statistics Canada.This marks the second consecutive quarter of annualized decline, which meets the definition of a technical recession.

Despite this, GDP on a quarterly basis remained flat compared to the fourth quarter of 2025, suggesting the economy narrowly avoided a quarter-on-quarter recession.Analysts had expected a more robust growth of 1.5 per cent, making the contraction a surprise.

While some sectors such as household spending, particularly in financial services and food, showed growth, this was offset by declines in business and government investments.Business capital investment has now fallen for five straight quarters.Imports were high in the first quarter but were counterbalanced by increased inventories.

Economists, including BMO’s Douglas Porter, suggest that the slight dip could easily be revised and point to early signs of recovery, with April’s growth estimated at 0.4 per cent.The Bank of Canada anticipates overall growth for 2026 to be around 1.2 per cent, down from 1.7 per cent last year.Challenges persist due to trade uncertainty, tariff impacts, and higher prices affecting investments and hiring.