Is Canada in a recession?

What is a recession?

The most common definition of recession is two consecutive quarters of negative real (inflation adjusted) gross domestic product (GDP) growth. This is often referred to as a technical recession. But this definition is only useful in retrospect, as the numbers aren’t available in real time. For example, we may be living through a recession in June 2025, but until Statistics Canada publishes numbers for second-quarter GDP at the end of August and Q3 GDP at the end of November, we can’t confirm that. 

Rather than waiting for the official verdict, we can look at other statistics like unemployment, average income, housing starts and consumer spending as indicators of a shrinking economy.

What happens during a recession?

In a recession, unemployment rises and average income falls. People reduce their spending, so inflation often declines (but not always). Housing starts fall. Corporate profits drop. These effects can be caused by many different factors. 

The first wave of COVID-19 caused a recession, as did the 2007–2008 U.S. financial crisis. Poorly timed economic policies like interest-rate hikes can stall the economy and trigger recession. Currently, the U.S. trade war is fuelling unemployment, business disruption and uncertainty in Canada, potentially contributing to a recession. 

On average, recessions last less than a year. In the U.S., the National Bureau of Economic Research (NBER) reports that American recessions since 1945 have lasted about 10 months. The range is significant, however, with the shortest, the COVID-19 recession, lasting only two months (though they spanned two quarters). The Great Recession following the U.S. financial crisis lasted about 18 months. 

A depression is a severe, long-lasting recession, although the distinction isn’t well defined.  Some say a depression is a recession where GDP drops 10% or more. The longest period of contraction during the Great Depression of the 1930s lasted three and a half years. According to the Federal Reserve Bank of San Francisco, during that period real output in the U.S. fell nearly 30% while unemployment rose to 25%. No modern-day recession has been anywhere near as long or as devastating.

Will Canada go into a recession in 2025?

A survey of 34 economists by Bloomberg News in May 2025 concluded that Canada was already in the early stages of recession. They pointed to metrics such as rising unemployment and a slowing housing market. At the same time, the Organization for Economic Development (OECD) was forecasting weak growth and high unemployment but no recession. Regardless of whether we’re in a recession or not, almost every commentator agrees that the outlook for the Canadian economy is currently negative.  

Canadian consumers are clearly expecting a downturn. According to the Bank of Canada’s Q1 2025 Canadian Survey of Consumer Expectations, respondents expected their financial well-being to decline over the next 12 months. People estimated the probability of losing their jobs in the next 12 months as slightly more than 20%, compared to around 11% a year earlier and 5% 10 years ago. 

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Are Trump’s tariffs to blame for a recession in Canada?

The Canadian economy was slowing down before U.S. President Donald Trump launched his trade war against Canada with “Liberation Day” on April 2. Slowing immigration was a key factor unrelated to U.S. politics. Unemployment was rising and average income was falling. Tariffs accelerated the slowdown, increasing unemployment, hurting consumer confidence and wreaking havoc on businesses. 

The impacts continue to ripple through the economy, with potential home buyers fearful of taking on mortgages in case they lose their jobs, and businesses pausing expansion plans while they grapple with dramatic changes in the cost of inventory and materials. Regardless of how long the tariffs last, the uncertainty they’ve created has caused consumers and businesses to rethink spending plans.  

What happens to the housing market in a recession?

Although housing prices often fall in a recession, recessions don’t always go hand-in-hand with housing crashes. Some economists believe that factors like low inventories of homes, limited new supply from builders and strong demand will protect the housing market from a crash. 

Housing prices in some Canadian markets have already declined. Royal LePage’s Q1 2025 national housing market report found aggregate home prices in the Greater Toronto Area fell 2.7% year-over-year to $1.1 million, while homes in Greater Vancouver declined 0.7% to $1.2 million. Over the same period, however, other markets, including Quebec City, Montreal, Edmonton and Halifax, saw increases. Data from Ratehub.ca saw mortgage affordability improve in April 2025 in seven major markets including Hamilton, Toronto and Vancouver. (Ratehub.ca and MoneySense.ca are both owned by Ratehub Inc.) There’s no guarantee these trends will continue, but so far, the recession is good news for prospective home buyers.

While the U.S. experienced a housing crash in 2008, the worst since the Great Depression, unique factors were at play. The subprime mortgage market had grown dramatically, with banks and other financial institutions lending money to high-risk borrowers. Lenders were willing to lend to almost anyone, popularizing terms like NINJA loans (“no income, no job or assets”) and “liar” loans, where no proof of income was required. Regulations banning this type of lending have since been implemented in the U.S. In Canada, the subprime industry remained small and stricter banking regulations prevented much of the risky behaviour that caused the U.S. crash.

Best investments during a recession

A recession in Canada doesn’t necessarily mean a stock market crash. Economies and stock markets don’t move in sync. Russell Investments reports that, in the past, stock market returns have been positive in 16 U.S. recessions and negative in 15 recessions. 

Even when a recession triggers a bear market—a market decline of 20% or more—staying invested is almost always the best strategy because, like recessions, bear markets are usually short-lived, lasting only 11 months on average.

Investors who sell during periods of market volatility often miss out on the upswing when markets recover. According to Franklin Templeton, if you’d invested $10,000 in the S&P 500 at the beginning of 2005, you’d have $71,750 at the end of 2024, an average annual return of 10.35%. But there were 5,033 trading days over those 20 years, and if you missed the 10 best days, you’d have only $32,871, an average annual return of 6.1%, If you’re anxious about the stock market, remember that from 1937 to 2024, returns for the S&P 500 were positive in 67 calendar years, or 76% of the time. Over the long term, stock markets tend to go up.