By Promit Mukherjee
OTTAWA, May 29 (Reuters) – Canada’s economy contracted in the first quarter of the year on an annualized basis, data showed on Friday, making it two consecutive quarters of annualized decline which some would call a technical recession.
However, on a quarterly basis, the first quarter GDP was unchanged against a decline in the fourth quarter of last year, closely escaping the definition of a technical recession on a quarter-on-quarter basis.
Gross domestic product declined at an annualized rate of 0.1% in the first quarter, Statistics Canada said, compared with a downwardly revised contraction of 1% in the fourth quarter of last year.
Analysts polled by Reuters and the Bank of Canada had predicted the first quarter growth at annual rates at a robust 1.5%.
Two consecutive quarters of contraction in economic growth is termed a technical recession.
The last two times when Canada was in a technical recession was during the start of the pandemic and during the oil shock in the beginning of 2015.
At that time there was two consecutive quarters of decline both on an annualized basis and quarterly basis, StatsCan said.
Canada’s economy has largely withstood trade uncertainty and tariff impacts for over a year, but the knock-on effects of tariffs have sapped investments, hiring, expenditure and driven prices up.
The upcoming review of the North American free trade deal and the crude price shock due to the Middle East war have added more layers of uncertainty, hurting growth prospects.
The BoC has said that the growth this year is likely to be at 1.2%, down from 1.7% last year. It will update its projections in July.
The first quarter GDP was negatively impacted by a high level of imports into the country but that was largely offset by a high accumulation of inventories, the statistics agency said.
Household spending grew, especially in financial services and food, adding to the GDP, but it was again mostly canceled a decline in business and government investments.
Business capital investment fell 0.7% in the first quarter of 2026, its fifth consecutive quarterly decline, StatsCan said.
On a monthly basis, the GDP in March declined by 0.1%, against an estimate of flat growth.
An advance estimate from StatsCan showed that growth in April was likely to be 0.4%, highlighting a strong start to the second quarter.
Money markets are pricing in a rate hike of 25 basis points in December, even as most economists have called for no change in interest rates all through the year.
The Canadian dollar weakened after the GDP data and was trading down 0.28% to C$1.3819 to the U.S. dollar, or 72.36 U.S. cents. Yields on the two-year government bonds slipped further and were down 7.7 basis points to 2.430%.
(Reporting by Promit Mukherjee; Editing by Dale Smith and Nick Zieminski)
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