Canada’s economy experienced a slight contraction in the first quarter of 2026, with annualized GDP falling 0.1 per cent, following a 1-per-cent decline in the fourth quarter of 2025.

While two consecutive quarters of negative growth are sometimes labelled a 'technical recession,' economists caution that the first-quarter drop is minor and may be revised.The last time Canada experienced back-to-back declines was during the early COVID-19 pandemic.Factors contributing to the slowdown include weak business and government investment, with government capital spending falling 2.5 per cent and business investment declining 0.7 per cent for the fifth straight quarter.Trade tensions with the United States remain a significant drag, with exports down slightly while imports surged 2.9 per cent, particularly in gold, vehicles, and machinery.Consumer spending showed modest growth of 0.4 per cent, mainly in financial services and food, but was offset by weaker spending on vehicles.The housing market continued to weigh on growth, with resale activity down 9.9 per cent.Despite these challenges, preliminary data for April suggest the economy began recovering in the second quarter.Economists expect the Bank of Canada to maintain interest rates at 2.25 per cent, balancing inflation risks against economic slack.Overall, ongoing trade uncertainty, geopolitical developments, and weak investment are central to the economy's subdued performance.