Canada: Economy shrinks less in the first quarter of 2026
GDP reading: Canada’s GDP declined 0.1% in seasonally adjusted quarter-on-quarter annualized (SAAR) terms in Q1, following a 1.0% contraction in the previous quarter. The reading disappointed market expectations and flash estimates for an expansion of around 1.5%. A deterioration in net exports plus weak government spending and investment were largely to blame for the economy shrinking.
Broad-based economic weakening: Relative to the previous quarter’s data, the reading for imports of goods and services improved in Q1 (+12.0% in seasonally adjusted quarter-on-quarter annualized (SAAR) terms vs +2.0% in Q4) amid higher gold imports. In contrast, readings softened for private consumption (+1.5% vs +2.9% in Q4), government consumption (-1.0% vs +2.3% in Q4), fixed investment (-4.3% vs +2.8% in Q4) and exports of goods and services (-0.5% vs +6.7% in Q4).
In annual terms, economic output shrank 0.1% in Q1, following a 0.7% expansion in the previous quarter.
Panelist insight: On the data, Desjardins’ analysts said:
“Questions have been pouring in regarding whether the Canadian economy is in recession. We don’t believe it is, at least not yet. Yes, real GDP has contracted for two consecutive quarters. But while this is a necessary condition to call a recession, it is not sufficient. That’s because the weakness in the economy needs to be large and broad-based across industries and sectors. And according to our analysis, the Canadian economy is not there yet (graph 3). More than half of the industries in Canada have been expanding over the past six months, and consumers have continued to increase their purchases of good and services.”