Canada Slips into Technical Recession as First-Quarter GDP Contracts 0.1%

Canada’s economy unexpectedly contracted 0.1% at an annualized rate in the first quarter, Statistics Canada reported on May 29, marking the country’s first technical recession since 2015. The decline, far below the 1.5% growth forecast, followed a downwardly revised 1% drop in the fourth quarter of 2025 and was driven by weak business investment and government spending, compounded by U.S. tariff pressures. Business capital expenditure fell 3%, its fifth straight quarterly decline, while government capital spending tumbled 9.6% after a surge in weapons purchases in the prior quarter. Exports dipped 0.5%, with auto shipments hit by tariffs. The loonie weakened and government bond prices rose after the release. Despite two consecutive quarters of contraction, Statistics Canada’s preliminary estimate for April pointed to a 0.4% monthly rebound, led by mining, oil and gas, and manufacturing. The Bank of Canada, which has held its policy rate at 2.25% for four meetings, faces a dilemma as elevated energy prices fan inflation risks while growth stumbles. Economists said the central bank would likely cut rates if not for the price pressures.