At the end of May, Statistics Canada announced Canada’s gross domestic product (GDP) shrank in the first quarter of 2026. Due to the contraction in the fourth quarter of 2025, Canada’s economy fell into a technical recession, which is marked by two consecutive quarters of falling economic growth. Canada’s economy is feeling the impact of trade and geopolitical tensions, which is also clouding the outlook. Canadian households and businesses are facing headwinds from surging prices and lower confidence. Here are more details from Canada’s first quarter GDP report.

• Canada’s GDP shrank by 0.1%, annualized, over the first quarter of 2026. The result disappointed economists, who were expecting a 1.5% expansion, based on a Bloomberg survey.
• After falling by 1.0% in the fourth quarter of 2025, the economy slipped into a technical recession.
• A decline in net exports hindered overall growth over the quarter. Imports picked over the month, while exports declined. Trade tensions continue to weigh on several critical sectors of Canada’s economy.
• Capital investment by businesses and the government dropped in the first quarter, dragging down growth.
• On the other hand, household spending increased. Canadian households demonstrated their relative strength before the Mideast conflict escalated and pushed up energy prices. With inflation moving higher in recent months, spending seems to have pulled back.

Data from yesterday showed that Canadian consumer confidence pulled back over the week ended May 29, while manufacturing activity slowed in May. Data is showing that Canada’s economy is under pressure as it grapples with ongoing trade tensions and higher prices, which are weighing on consumer and business confidence. The Bank of Canada makes its next interest rate decision on June 10. Markets will carefully monitor comments from officials to gauge the potential direction of interest rates and monetary policy in the months to come. 

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.