Canada slipped into what is defined as a technical recession during the first quarter of 2026, with real gross domestic product contracting at an annualized rate of 0.1%. The decline follows a deeper-than-initially-reported drop in the previous quarter, creating two consecutive quarters of negative growth.
Statistics Canada revised its estimate for the fourth quarter of 2025 to a 1.0% annualized contraction, a steeper fall than the agency's earlier 0.6% figure. The sequence of quarterly declines contrasted with Bloomberg-surveyed economists' expectations of a robust 1.5% annualized expansion for the first quarter of 2026.
Trade dynamics played a large role in the quarterly outcome. Imports jumped 2.9%, a rise that substantially subtracted from measured output. More than half of that import increase was attributable to intermediate metal products, waste and scrap metal linked to gold. At the same time total exports edged down 0.1%, weighed by reduced shipments of passenger cars and light trucks that continue to face pressure from US tariffs.
On the investment front, domestic business gross capital formation declined 0.7%, marking the fifth straight quarterly fall for business investment as trade uncertainty continued to weigh on industrial activity. Residential structures contracted 2.0% during the quarter, driven in large part by a 9.9% collapse in resale housing activity and ownership transfer costs.
Government capital spending also pulled back, falling 2.5% as spending on weapons systems eased from the elevated levels recorded at the end of last year. These reductions in public and private capital outlays were only partly offset by consumer spending.
Household consumption rose 0.4% in the quarter, supported by higher outlays on food and on financial services. That increase in consumer spending came alongside a decline in the household saving rate to 3.5%, the lowest level in two years. Interest expenses on both mortgage and non-mortgage debt grew 0.7% during the quarter, pressured by a Bank of Canada policy rate that remained unchanged through the period.
Industrial activity in March showed further signs of weakness, with monthly GDP down 0.1% and goods-producing industries contracting 0.8%. The slowdown was concentrated in mining, quarrying and oil and gas extraction, and was accompanied by broad-based declines across construction and retail trade.
There are tentative signs of a short-lived reprieve for the broader economy. Statistics Canada's advance estimate for April 2026 points to a 0.4% monthly rebound, led by a recovery in manufacturing and resource extraction.
What this means for affected sectors
- Real estate and residential construction are under pressure after a 2.0% drop in residential structures and a 9.9% collapse in resale housing activity.
- Goods-producing industries, including mining, quarrying and oil and gas extraction, along with construction and retail trade, experienced notable pullbacks in March.
- Trade-exposed sectors such as the automotive industry saw export volumes fall amid ongoing tariff-related pressures on passenger cars and light trucks.
While April's advance estimate offers a potential uptick, the data for the first quarter show that weaker capital investment and rising import volumes were central to the GDP decline. The combination of lower public weapons systems spending, subdued business investment, and a large import surge contributed materially to the negative headline outcome.