Technical recession hits Canada amid US tariff tensions

Canada has entered a technical recession, with its economy contracting 0.1 percent on an annualized basis in the first quarter of 2026, following a downwardly revised one-percent decline in the fourth quarter of 2025. The figures from Statistics Canada came in significantly weaker than the 1.5 percent growth predicted by economists and mark the first time since the COVID-19 pandemic that the country has posted back-to-back quarterly declines in gross domestic product. While the first quarter decline was small and could be revised upward, economists say it underscores a broader struggle: the Canadian economy has contracted in three of the past four quarters with virtually no growth over the past year. The weak economic performance has drawn sharp political criticism, with opposition leader Pierre Poilievre accusing Prime Minister Mark Carney of being the only G7 leader to lead his country into a recession amid shared tariff and trade pressures. The situation has been compounded by deteriorating trade relations with the United States, where the Trump administration is pushing to raise regional content requirements for North American-built vehicles to 82 percent under the USMCA, with 50 percent produced in the US specifically. Canada was notably excluded from negotiations in Mexico City, where officials presented Mexico with a take-it-or-leave-it proposition ahead of the agreement's July review. Looking ahead, April's 0.4 percent monthly growth and a 0.2 percent rise in per capita GDP offer glimmers of hope, though the Bank of Canada is expected to remain on hold given persistent economic slack. Business investment has declined for five consecutive quarters, the housing market continues to drag with resale activity down nearly 10 percent, and exports fell as tariff-related disruptions reduced shipments of cars and trucks to the US. In response, Canada is accelerating efforts to diversify trade relationships, including hosting China's Foreign Minister Wang Yi, who suggested Canadian exports to China could double by 2030, building on an initial January agreement to slash tariffs on electric vehicles.