Recent headlines have raised concerns after Canada's economy shrank by 0.1% in the first quarter of 2026. Since this was the second straight quarter of negative growth, some have labeled it a "technical recession."

But the full story is a bit more complicated.

A recession is usually more than just two weak quarters. Economists also look at how severe the slowdown is and whether it affects most industries and workers. Based on those measures, Canada doesn't appear to be in a true recession.

Here are a few reasons why:

• The 0.1% decline was very small and within the normal margin of error. Another way of measuring gross domestic product actually showed 0.5% growth in the first quarter.
• On a per-person basis, the economy actually grew by 0.9%, meaning the slowdown was largely tied to slower population growth rather than weaker demand.
• More than half of Canadian industries continued to grow, unlike in past recessions when declines were widespread.
• Unemployment has fallen over the past two quarters, even though job losses are usually common during recessions.
• Consumers are still spending money, and household savings have declined, suggesting people haven't dramatically cut back.
• Statistics Canada's early estimate for April showed gross domestic product growing by 0.4%, the strongest monthly increase in nine months and a sign the economy may already be rebounding.

That doesn't mean the economy is strong. Growth has been sluggish, and two of the past four quarters have seen declines. Slower population growth and weaker government spending have also weighed on overall economic activity.

Still, there are reasons to be optimistic. Business and consumer confidence have improved, higher oil prices are helping exports, the housing market is showing signs of stabilizing, and government spending is expected to support growth again.

Overall, we believe Canada is experiencing a period of slower growth rather than a recession. Our forecast remains that the economy will grow by 1.4% on a fourth quarter-over-fourth quarter basis in 2026, modestly ahead of its long-term growth trend.

_{Thank you to Josh Nye, Senior Economist of RBC Global Asset Management Inc., for sharing his research and content with me for my blog.}

-Brad Weatherill