Canada has fallen into its first technical recession since the pandemic, after the economy contracted for a second consecutive quarter, missing forecasts by a wide margin and raising fresh concerns about the impact of ongoing US tariffs.
Real GDP declined 0.1% in the first quarter of 2026, following a 1% contraction in the fourth quarter of 2025, according to Statistics Canada. Economists had expected growth of 1.5% in the first quarter.
The back-to-back contractions mark Canada's first technical recession since the COVID-19 lockdowns of 2020.
A sharp rise in imports weighed heavily on the headline figure. Imports climbed 2.9% in the quarter, driven largely by gold, which fuelled a buildup in business inventories. While the inventory accumulation partially offset the drag from imports, exports edged down 0.1%, led by a decline in passenger car and light truck shipments affected by US tariffs. Higher crude oil and natural gas exports cushioned part of that decline.
Business capital investment fell for a fifth consecutive quarter, dropping 0.7%, with a 4.6% decline in engineering structures the primary drag. Residential investment also contracted 2.0%, weighed down by a 9.9% slump in resale housing activity.
Government capital investment fell 2.5% following a period of elevated spending on weapons systems at the end of 2025.
Household spending rose 0.4%, supported by higher outlays on financial services and food, though fewer Canadians travelling abroad and weaker vehicle purchases limited overall consumption growth.
The household saving rate fell to 3.5%, its lowest level since the first quarter of 2024, as nominal consumption expenditure grew faster than disposable income.
Corporate incomes rose 1.6%, supported by strength in energy prices, while compensation of employees increased 1.2% across all provinces and territories.
The data adds to a deteriorating economic picture, with Canada's weak job market compounding concerns that the economy will remain under pressure as long as US tariffs remain in place.