Is Canada headed for a recession? Here're the details

Economic Times

18-05-2025

Canada is facing a possible recession because of global trade issues. Traditional signs like GDP growth and job losses are worrying. Unemployment has increased, and forecasts predict slow growth. Consumer confidence is mixed, with some fearing a downturn. Unusual economic indicators are also being watched. The future is uncertain due to tariffs and other economic problems.
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Traditional Indicators Point to Trouble
Deloitte warns of a looming downturn, citing weak GDP growth and falling investment.
Oxford Economics projects just 0.7% growth in 2025, followed by a 0.2% contraction in 2026, driven by global trade shocks and reduced immigration.
RBC anticipates continued slowing of growth into 2026.
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Consumer Confidence: A Mixed Signal
Reading the Quirky Economic Tea Leaves
The 'lipstick effect': People splurge on small luxuries during tough times.
Greenspan's 'men's underwear index': Underwear sales dip during recessions, as it's one of the easiest purchases to delay.
The 'cardboard box recession': A drop in demand for cardboard boxes, according to Charles Schwab's Jeffrey Kleintop, may indicate a slowdown in manufacturing.
The 'Skyscraper Index': Economist Andrew Lawrence notes that the construction of record-breaking skyscrapers often precedes economic downturns.
Uncertainty Reigns
As global trade tensions escalate, Canada finds itself on the brink of a potential recession, with both traditional and unconventional indicators flashing warning signs.The C.D. Howe Institute defines a recession as a "pronounced, persistent, and pervasive decline in aggregate economic activity," typically marked by two consecutive quarters of declining GDP. Current forecasts suggest storm clouds may be gathering:Meanwhile, Canada's job market is under strain. As of April 2025, the unemployment rate rose to 6.9% — the highest since November 2023 — leaving more than 1.6 million Canadians out of work. That month, the economy lost 30,000 jobs, while adding just 7,400 new ones.The Bank of Canada, in its recent Financial Stability Report, outlined scenarios in which prolonged U.S. tariffs could trigger a year-long recession, with GDP declining for four consecutive quarters.Consumer sentiment is sending more ambiguous signals. The Bloomberg-Nanos Canadian Confidence Index rebounded to 48.6 as of May 9, approaching the neutral 50-point threshold. Data scientist Nik Nanos attributes the boost to the election of Prime Minister Mark Carney.But some economists warn the rebound may not last. Walid Hejazi, professor at the University of Toronto, notes that fear alone can drive downturns. 'If consumers fear a recession is coming,' he says, 'they may reduce their spending, and reduced consumer spending makes the economy slow down even more.'Beyond the traditional data, economists are watching more unusual trends:The road ahead is anything but clear. Isabelle Salle, a behavioral macroeconomics professor at the University of Ottawa , says we're navigating uncharted waters.'Tariffs and this uncertainty shock just added to existing problems, at the worst time possible,' she explains. 'With uncertainty, you cannot easily assign probabilities to the different scenarios. You really have to operate with just options.'