Canada’s economy is weak, but ‘not clearly in recession,’ Macklem says

Bank of Canada Governor Tiff Macklem announced on Wednesday that the Canadian economy remains weak but is not clearly in recession, despite recent data indicating a technical recession. The central bank held interest rates steady at 2.25%, marking the fifth consecutive rate pause since October 2025. This decision follows a GDP report showing two consecutive quarters of decline, but Macklem emphasized that the overall economic activity does not meet the typical definition of a recession.

During a press briefing, Macklem explained that recent GDP figures show a roughly flat economic performance over the past year, with a slight increase in employment and stable unemployment rates between 6.5% and 7%. The GDP contracted by 1% in the fourth quarter of 2025 and by 0.1% in the first quarter of 2026, which technically qualifies as a recession under common economic definitions. However, Macklem pointed out that more than half of industries experienced growth in the first quarter, and there has been no broad-based decline across the economy.

The governor cited external factors such as ongoing conflicts in the Middle East, which have kept oil prices elevated and disrupted supply chains, alongside persistent global uncertainty stemming from U.S. tariff policies. Macklem noted that while energy prices have risen, there has been limited evidence of widespread pass-through to consumer prices. Food inflation remains high but has shown signs of moderation. The Bank’s decision to keep rates unchanged reflects a cautious approach amid these mixed signals, with the central bank prepared to act if conditions worsen.

Implications of a Weak but Not Recessionary Economy

This situation indicates a cautious stance by the Bank of Canada amid ongoing economic uncertainty. While recent data suggests economic weakness, the absence of a broad decline means policymakers have not yet confirmed a recession, allowing for potential policy adjustments. For consumers and businesses, this signals a period of stagnation rather than sharp contraction, but risks remain due to external global factors and domestic slack.

Recent Economic Data and Global Factors Influencing Canada

Over the past year, Canada’s GDP has shown minimal growth, with consecutive quarterly declines signaling a technical recession. The labor market has remained relatively stable, with unemployment rates steady, but economic activity has been subdued. External influences such as the conflict in the Middle East and U.S. trade policies have contributed to elevated energy prices and global economic uncertainty. The Bank of Canada’s previous rate cuts in October 2025 have been followed by a pause, reflecting a wait-and-see approach amid these conditions.

“The economy is weak, but it is not clearly in recession.”

— Tiff Macklem

Uncertain Outlook and Potential Policy Responses

It remains uncertain whether the current economic weakness will deepen into a full recession or if external shocks will abate, allowing growth to resume. The impact of ongoing geopolitical conflicts and U.S. trade policies could alter the economic trajectory, and the Bank of Canada has not yet indicated specific future rate moves beyond the current hold. The extent to which external factors will influence domestic growth remains a subject of ongoing assessment.

Next Steps and Economic Monitoring by the Bank of Canada

The Bank of Canada will continue to monitor economic data closely, including GDP, employment, and inflation trends. Future rate decisions will depend on whether the economy shows signs of sustained recovery or further weakness. Key upcoming reports, such as quarterly GDP and employment figures, will inform whether the bank maintains its cautious stance or considers adjustments. Global developments, especially in energy markets and U.S.-Canada trade relations, will also influence policy directions.

Key Questions

Is Canada officially in a recession?

No, the Bank of Canada states that the economy is weak but not clearly in recession, despite recent GDP declines.

Why is the Bank of Canada holding interest rates steady?

The bank is maintaining its rate at 2.25% due to mixed economic signals and global uncertainties, waiting to see if conditions improve or worsen.

What external factors are affecting Canada’s economy?

Ongoing conflicts in the Middle East and U.S. trade policies are increasing energy costs and global economic uncertainty, impacting Canada’s outlook.

Could the economy slip into a recession later?

It is possible if external shocks persist or domestic weaknesses deepen, but the Bank of Canada has not indicated an imminent recession.

What should Canadians expect in the coming months?

Expect continued monitoring of economic data with potential policy adjustments if signs of sustained weakness or recovery emerge.

Source: Google Trends