Despite the fact that Canada’s economy contracted for a second consecutive quarter, the Bank of Canada is urging people not to rush to conclusions about the start of a full-fledged recession.
Speaking before a parliamentary committee on Monday, Bank of Canada Senior Deputy Governor Carolyn Rogers said that a single GDP figure is not enough to assess the state of the economy.
According to Statistics Canada data, the country’s real gross domestic product fell by 0.1% at an annualized rate in the first quarter of 2026. This marked the second consecutive quarter of economic decline following a revised 1.0% drop in the fourth quarter of 2025.
Formally, two consecutive quarters of negative growth match the common definition of a so-called “technical recession.” However, Rogers emphasized that this term does not reflect the full picture.
“The very fact that you have to add the word ‘technical’ before the word ‘recession’ shows the need to look more broadly than at a single indicator,” she noted.
What’s happening in the economy
The first-quarter results were weaker than analysts’ expectations. The main factor behind the decline was a sharp rise in imports, about half of which was linked to gold purchases. The negative effect was partly offset by an increase in companies’ inventories.
At the same time, there was a further weakening of investment activity:
- business investment in fixed capital fell by 0.7%;
- this is the fifth consecutive quarter of decline;
- investment in residential construction decreased by 2.0%;
- activity in the home resale market dropped by 9.9%.
At the same time, a preliminary estimate for April showed signs of a rebound. According to the Bank of Canada, output in the economy rose by 0.4% compared with the previous month.
The housing market remains cautious
Economic uncertainty is having a noticeable impact on homebuyers.
According to the Ownright Operators Report survey conducted among more than a thousand real estate professionals across the country, 40% of respondents cited concerns about the state of the economy and a possible recession as the main factor keeping buyers and sellers from making deals. This factor proved more important than even interest rates and the labor market situation.
What this means for the rate decision
The Bank of Canada’s next decision on the key policy interest rate will be announced on June 10 and is drawing heightened attention from the financial market.
Economists are not yet rushing to talk about a full-fledged recession. For example, Derek Holt of Scotiabank noted that a recession usually requires a longer period of deterioration in employment and industrial production indicators.
A similar view is held by Sal Guatieri of BMO Capital Markets. In his view, the Bank of Canada will likely maintain a wait-and-see stance, although further deterioration of the economy due to trade conflicts could force the regulator to cut rates.
For the housing market, this is of particular importance. A weaker economy usually leads to lower bond yields and creates conditions for cheaper mortgages, which could potentially support demand for real estate.
The Bank of Canada said that when making its decision on June 10 it will take into account both GDP data and the May employment report. These indicators will help determine whether the current slowdown is a temporary phenomenon or the beginning of a more serious economic downturn.
