Political Drama Over Technical Recession Not Justified

Canada’s economy has been growing very slowly for the last year, since Donald Trump launched his trade war against Canada’s exports. The side-effects of Trump’s attacks against Iran (including high oil prices and accelerating inflation) have further undermined growth in Canada.

Recent Statistics Canada data indicate that real GDP in Canada (adjusted for inflation) declined very slightly (by 0.036%) in the first quarter of 2026. Coming on the heels of a larger decline in real GDP in the final quarter of 2025, this signifies that Canada is experiencing a ‘technical recession” – traditionally defined as two consecutive quarters of contraction in real GDP.

There is no doubt that Canada’s economy faces serious headwinds, primarily the decline in exports to the U.S. and weak business capital spending (hurt by the uncertainty surrounding the trade environment and the economic outlook). As Centre for Future Work Director says in this commentary, originally published in the Toronto Star, whether the resulting growth is slightly above or slightly zero is not meaningful for economic policy decisions.

A technical recession is more about politics than economics

By Jim Stanford

Statistics Canada recently released its quarterly report on Canadian GDP, covering the first three months of 2026. Most economists had expected a modest increase in GDP, but the final number came in slightly below zero.

Coming on top of a small decline in the last quarter of 2025, this means Canada has experienced what is commonly called a ‘technical recession’: two consecutive quarters of shrinking real GDP (adjusted for inflation).

Opposition politicians jumped on this report as evidence that Canada’s economy is being mismanaged. They were joined by Pete Hoekstra, the famously undiplomatic U.S. ambassador to Canada, who cited the data to renew his call for Canada to become the 51st state.

‘Technical recession’ is a very rough-and-ready benchmark commonly used to determine whether the economy is shrinking. One-quarter declines in real GDP often occur, without signalling serious economy-wide trouble.

The two-quarter rule is only slightly more robust. But it is still arbitrary and subjective, and doesn’t necessarily say much about what’s actually happening in the economy.

The U.S. follows a much stricter definition. A technical committee at the National Bureau of Economic Research (NBER) monitors dozens of indicators, including employment, consumer spending, and business investment. Only when there is widespread evidence of significant contraction “spread across the economy and last[ing] more than a few months,” will it declare a recession.

Even as technical recessions go, this one is as ‘technical’ as they can get. Both of the quarters in question registered tiny declines in measured real GDP. And both of those declines reflected unusual statistical quirks, more than evidence of broader economic contraction.

In the fourth quarter of 2025, GDP declined solely because businesses sharply reduced excess inventories accumulated earlier in the year, after Donald Trump started his trade war. Statistics Canada accounts for inventory reductions as a charge against GDP. Excluding that $13 billion drawdown, GDP would have grown a modest 0.3 percent.

Then in the first quarter of 2026, GDP shrank because of an unusual surge in gold imports, which rose (coincidentally also by $13 billion) as industrial users and financial investors took advantage of softer gold prices. Without that temporary inflow of gold, GDP would have grown 0.5 percent.

So in neither case was the broader economy genuinely shrinking. Canada’s economy is not in recession, in any economically meaningful sense. This week’s strong labour force report, showing Canada created 88,000 jobs in May, confirms the economy is still growing, albeit too slowly.

Opposition politicians see the technical recession as great fodder for memes and sound bites. Indeed, Conservative leader Pierre Poilievre talked of virtually nothing else last week. Politicians should be careful, however, about putting too much emphasis on this single, arbitrary metric.

Statistics Canada regularly revises its GDP data on the basis of new information. The decline in first-quarter GDP was so tiny (just $900 million out of a $3 trillion economy, or 0.036%) it could easily switch positive with the next revision. In fact, that decline was so small Statistics Canada’s official release stated that GDP was “unchanged” – a nuance lost in the histrionics of Question Period.

Just such a revision occurred back in the third quarter of 2023. A much larger initial decline in GDP (reported as -0.4% at the time) was later changed to a small increase. If that happens again, the whole pseudo-recession will be revised right out of existence, and these politicians will rightfully look silly.

There’s no doubt Canada’s economy is facing tough times. Donald Trump’s tariffs, now followed by his war in the Persian Gulf, are the clear culprits behind weak exports and investment uncertainty. Whether GDP growth is slightly above zero, or slightly below, is irrelevant. The critical priority is to boost spending, investment, and job-creation in all sectors (including public services) fast enough to offset that shock and enhance Canada’s economic independence.

Theatrics over whether an arbitrary line has been crossed are an unhelpful distraction from that task.