Is Canada in a Recession in 2026? Key Economic Indicators

A recent BMO survey found that 74% of respondents were worried about a recession in 2025, up from 60% a month earlier. Knowing how a recession could affect your finances can reduce stress and help you make better decisions about saving, investing and spending.

What is a recession?

The standard definition of a recession is two consecutive quarters of negative real (inflation-adjusted) gross domestic product (GDP) growth, often called a technical recession. Because GDP figures are reported with a delay, this definition is confirmed only in hindsight. For example, an economic contraction in June 2025 would only be verified after Statistics Canada releases second- and third-quarter GDP data later in the year.

Instead of waiting for the official declaration, economists and policymakers monitor indicators such as unemployment, average wages, housing starts and consumer spending to assess whether the economy is contracting.

What happens during a recession?

Recessions typically bring higher unemployment and lower average incomes. Households cut back on spending, which often eases inflation pressure. Housing starts and business investment decline, and corporate profits fall. These outcomes can stem from many causes: financial crises, global shocks, or policy missteps such as abrupt interest-rate increases.

Historical examples include the COVID-19 recession and the 2007–2008 U.S. financial crisis. On average, recessions are relatively short: the U.S. National Bureau of Economic Research (NBER) reports that post‑1945 U.S. recessions have lasted about 10 months. The COVID-19 downturn was unusually brief, while the Great Recession lasted around 18 months. A depression describes a far more severe and prolonged contraction; the Great Depression of the 1930s saw output fall nearly 30% and unemployment reach roughly 25%, outcomes not observed in modern recessions.

Will Canada enter a recession in 2025?

Economists disagree. A May 2025 Bloomberg survey of 34 economists suggested Canada was in the early stages of a recession, citing rising unemployment and a cooling housing market. The OECD, by contrast, forecast weak growth and elevated unemployment but did not predict outright contraction. Still, most commentators agree the near-term outlook for Canada is weak.

Consumer expectations reflect that pessimism. The Bank of Canada’s Q1 2025 Canadian Survey of Consumer Expectations found respondents expected their household finances to deteriorate over the next year and placed the chance of job loss at just over 20%—up from roughly 11% a year earlier and 5% a decade ago.

Are tariffs responsible for Canada’s slowdown?

Canada’s economy was already cooling before U.S. tariffs were imposed. Slower immigration, rising unemployment and falling average incomes had begun to weigh on growth. Tariffs and trade uncertainty have likely accelerated that slowdown, disrupting supply chains, reducing business confidence and prompting some firms and consumers to delay major purchases.

Even if tariffs are temporary, the uncertainty they create can depress investment and consumption for longer than the tariff period itself, as households and businesses reassess risks and adjust spending plans.

What happens to housing during a recession?

Housing prices often fall in a recession, but a broad crash is not inevitable. Local market conditions — such as limited supply, ongoing demand and construction activity — can protect prices. Some Canadian markets have already seen price declines: Royal LePage reported a 2.7% year‑over‑year drop in aggregate GTA prices in Q1 2025 and a 0.7% decline in Greater Vancouver, while other regions, including Quebec City, Montreal, Edmonton and Halifax, recorded gains.

Mortgage affordability improved in April 2025 in several major markets, according to Ratehub.ca. The 2008 U.S. housing crash was driven by widespread subprime lending and weak regulation; Canada’s stricter rules and smaller subprime sector helped prevent a similar outcome here.

Best investments during a recession

A recession does not automatically mean a stock-market collapse. Market returns through recessions have varied: Russell Investments notes positive returns in some past U.S. recessions and negative returns in others. Bear markets are often brief; staying invested generally produces better long-term outcomes than trying to time exits and re-entries.

Missing the market’s best recovery days can dramatically reduce long-term returns. Historical analyses show that long-term investors who stayed the course fared much better than those who sold during downturns. Warren Buffett’s advice—“Be fearful when others are greedy and be greedy when others are fearful”—captures the opportunity to buy quality companies at discounted prices during broad market declines.

Rather than overhauling your portfolio, review your asset allocation to ensure it matches your risk tolerance, time horizon and short‑term cash needs. If job security is a concern, shifting toward more cash or fixed-income investments may be prudent. Otherwise, preserving diversification and avoiding drastic moves usually serves investors well through a short recession.

Best stocks to own in a recession

Defensive sectors tend to hold up better during downturns. Consumer staples, health care, telecommunications and utilities often outperform because demand for essentials is steady. Cyclical sectors—consumer discretionary, financials, real estate, industrials, information technology and materials—are more sensitive to economic swings.

Sector-rotation strategies aim to shift exposure into sectors likely to outperform in a given phase of the cycle, but timing such moves consistently is difficult. Defensive ETFs and dividend-paying companies are common choices for investors seeking lower volatility. Bonds can also offer stability, often appreciating when equities fall because inflation and interest rates tend to ease during recessions.

Recent flows into defensive ETFs show how expectations of a slowdown influence investor behavior. Still, aggressive reallocation can reduce diversification and increase the risk of underperforming if the market rebounds quickly.

How to prepare for a recession

Job loss is often the greatest personal risk in a recession and can lead to defaults or insolvency if not managed. Business owners may see revenue declines or face closure risk. Key steps to prepare include paying down consumer debt and building an emergency fund with six to 12 months of essential expenses.

If you’re approaching or in retirement, ensure you have enough cash and fixed-income holdings to fund near-term withdrawals so you don’t have to sell investments at depressed prices. In all cases, maintain diversification, avoid panic selling and resist attempts to time the market; those who sell during downturns commonly miss the rebound that follows.

12 questions about recessions, answered

1. When was Canada’s last recession?

The COVID-19 downturn in 2020 produced negative growth of 1.9% in Q1 and 11.3% in Q2, followed by a strong rebound of 8.9% in Q3.

2. What happens in a recession?

Recessions share features such as falling output, lower corporate profits and higher unemployment. While housing prices often fall, exceptions occur—as with the COVID-19 period when Canadian housing prices rose alongside mortgage rates.

3. What years did we have recessions?

Canadian recessions since 1929

Monthly peak	Monthly trough
February 2020	April 2020
October 2008	May 2009
March 1990	May 1992
June 1981	October 1982
October 1974	March 1975
March 1960	March 1961
March 1957	January 1958
July 1953	July 1954
April 1951	December 1951
August 1947	March 1948
November 1937	June 1938
April 1929	February 1933

4. Is a recession good or bad?

Recessions are a normal phase of the business cycle. Their effects depend on your circumstances: mortgage borrowers may benefit from interest-rate cuts, while savers relying on GICs may see lower returns. Housing price declines help buyers but hurt sellers. Some studies have found mixed social impacts, including reduced pollution and associated health benefits in certain downturns.

5. Will Canada go into a recession in 2025?

Forecasts differ. Several major banks predicted a recession in 2025, while others expected slow growth without contraction. Some observers believe the economy is already contracting. The final answer will depend on GDP figures from Statistics Canada.

6. Is Canada struggling economically?

Many structural challenges predate recent trade tensions: sluggish productivity, weak per‑capita growth and housing affordability pressures. The OECD projects rising unemployment in coming years, and reports and analyses have highlighted long-term growth concerns.

7. Is a deep recession likely?

A deep recession or depression—often defined informally as a double-digit GDP decline—is unlikely in 2025 but cannot be ruled out entirely. Most forecasts do not expect such an extreme outcome.

8. How can I save on groceries during a recession?

Food is a major household expense. During past recessions, shoppers shifted toward sales, coupons, generic brands and larger package sizes to lower costs. Planning meals, buying in bulk and comparing prices can help stretch your grocery budget.

9. Do interest rates fall in a recession?

Central banks usually cut interest rates to stimulate borrowing and spending during a recession, so rates often decline in downturns.

10. Is Canada in a housing crisis?

Housing affordability is a major issue. The IMF and other organizations have noted that Canada needs many more homes annually to meet demand driven by population growth and higher incomes. Public concern about housing consistently ranks highly in opinion surveys.

11. What cities face the greatest housing shortages?

Analyses based on population growth, sales-to-new-listing ratios and price changes have identified cities with severe supply pressures, including Sherbrooke, Halifax, Edmonton, Saskatoon and Calgary.

12. Is homelessness rising in Canada?

Rising housing costs contribute to homelessness. Data from communities that track monthly homelessness show significant increases since before the pandemic in many areas, though some communities have managed to reduce their numbers more recently.

Read more about the economy:

• How Canada’s inflation rate is affecting your finances
• Making sense of the Bank of Canada interest rate decision on June 4, 2025
• The price of a trade war? Gen Z might be paying for decades
• How young investors can respond to stock market volatility
• How much income do you need to buy a home in Canada?