
Canada’s economy appears to be entering a recession, according to a Bloomberg survey of 34 economists.
Output is expected to shrink by 1% in Q2 and by 0.1% in Q3 — meeting the definition of a technical recession.
A key factor is the ongoing trade dispute with the U.S., which has sharply reduced exports. Shipments are projected to fall by 7.4% in Q2 after American importers rushed to buy goods earlier in the year to avoid new tariffs from President Trump.
Economists expect a modest export recovery later in the year.
The economic tension is taking a toll on Canada’s job market and household spending. Unemployment is projected to rise to 7.2% in the second half of 2025, before easing in 2026. Inflation is also expected to stay slightly above the Bank of Canada’s 2% target, hitting 2.1% in Q3 and 2.2% in Q4.
This puts the Bank of Canada in a tough spot. Markets now assign less than a 30% chance of a rate change at the June policy meeting. Governor Tiff Macklem emphasized the importance of reducing uncertainty in guiding future decisions.
Business and consumer confidence has weakened amid U.S. tensions, dragging down the housing market. Home prices and sales are falling, and housing starts may decline further in the latter half of 2025.
PM Mark Carney will soon have an opportunity to meet with President Trump during the G7 summit in Alberta, marking Trump’s first Canadian visit since returning to office. However, Carney has warned that the era of deep Canada-U.S. economic integration may be ending.
Despite the short-term challenges, economists still forecast modest growth ahead — with GDP rising 1.2% in 2025 and 1% in 2026.