The Decibel - The recession question

Episode Date: June 4, 2026

Canada’s economy has stalled. According to Statistics Canada, Canada’s real GDP contracted 0.1 per cent on an annualized basis in the first quarter of 2026. In the previous quarter, there was a 1-per-cent annualized decline. Two consecutive quarters of decline has sparked debate in Ottawa and on Bay Street about whether the country is in a recession. Mark Rendell is The Globe’s economics reporter. He’s on the show to put these numbers in context, unpack the debate around what defines a recession, and what this says about Canada’s economic landscape.  Questions? Comments? Ideas? Email us at  [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Canada's economy is not doing so hot right now. New data from Statistics Canada says that GDP contracted 0.1% on an annualized basis in the first quarter of 2026. And this follows a 1% annualized decline in the previous quarter. This has spurred headlines, debates, and political rumblings over the R word. Recession. But Mark Rendell. the Globe's economics reporter, wants to clear a few things up. He's here to talk about what to make of these recent numbers,

why there's debate about what a recession is and what it isn't, and what we should really be paying attention to in light of this troubling economic picture. I'm Cheryl Sutherland, and this is the decibel from the Globe and Mail. Hi, Mark, nice to see you. Great to be on the show. I'm excited to discuss the R word. Yes, let's do it. So, of course, we're talking about recession,

because Statistics Canada put out new numbers last Friday, and we're starting to see these headlines talking about recession. But what are economists making up this moment? So I think the top line takeaway is the Canadian economy isn't doing well. Growth effectively stalled in the last quarter of 2025 in the first quarter of 2026. So there's been a lot of discussion about whether or not the situation we're in that amounts to a recession or not.

most economists on Bay Street aren't ready to pull the trigger yet and declare it a recession. But, you know, by some definitions, we're in what some people would call a technical recession, you know, I have some questions about that word. Lots of economists would. But yeah, at a very high level, we're getting buffeted by a lot of forces, both internationally and some significant changes domestically. And that's leading to a flatlining economy. Okay, you said technical recession. What does that mean? So the term technical recession is used to refer to two quarters of negative real GDP growth. It's a term that you're going to see a lot in the media.

It's being used for decades. It's not a term that there is a lot of agreement on amongst economists who look at it. You know, when they're trying to determine if an economy is in a recession, they're looking at the size of the contraction. They're looking at how long the contraction lasts for. They're looking at, you know, how widespread it is throughout the economy. When you look at the Q1 data, you know, the contraction is pretty small. It's 0.1% annualized. That's not a big contraction.

That's essentially the same as saying there was no growth at all. Statistics Canada frequently revises its GDP data a couple decimal points up and down. So you could easily see a situation where that, you know, 0.1% annualized decline disappears. So part of the reason that economists are debating whether this is a recession or not is because you could very well see that number get revised back into positive territory. You could also, of course, get revised down as well. I'm not prejudging one way or another. But there is that question, if you don't have that depth of GDP decline, if it could be revised up, you know, do you really want to start pulling out the R word yet? The R word obviously has a lot of political overtones. It also, you know, tends to remind people of really bad situations in the past, you know, beginning at COVID-19, 2008, 2009, the early 1990s. You know, those were all true, certified recessions, and it was pretty bad for households, pretty bad for workers, unemployment was quite high. I also don't want to downplay the fact that the economic data is weak, and it also came in significantly weaker than Bay Street and the Bank of Canada had penciled in.

I mean, it does sound like we are in a moment of economic trouble, let's say. Very briefly, what is contributing to this moment right now? I mean, we're getting hammered from all sorts of different angles. The thing that overlays at all is the trade context with the United States. You know, they have put big tariffs on a bunch of key Canadian industries, steel, automobiles, aluminum lumber, you know, that is significantly impacting Canadian exports. It's also weighing a lot on business investment. You know, if I'm a company and I'm trying to figure out whether to build a new factory or

hire a bunch of workers or buy a bunch of machinery and equipment, I probably want to know I have access to my big market in the U.S. So the trade war is kind of that thing that's weighing on exports and business. investment, population growth is declining. That's a big thing. In 2024, the federal government did a big switch on its immigration policy and has significantly slowed down the rate of growth in the population. We've actually seen population declining over several quarters. That's historically incredibly unusual. That weighs on the overall GDP numbers. You have fewer people in the country producing fewer goods and services. That's going to hit the top line number.

At the same time, GDP per capita has actually been going up, partially because of that population decline. So you got the trade stuff, you got the population stuff, the housing market, I mean, we've all read the headlines, the housing market's in a long-term slump that's been going on for several years, a lot of unsold condos in Toronto and Vancouver right now. And then the final thing to kind of layer on it is, and this is, you don't see it quite as much in the Q1 data, but it's certainly, you know, there in the conversation right now is the oil price shock, you know, the war in the New East has said oil prices sharply higher. For Canada, that's kind of a mixed bag. You know, we're an oil producer, a major oil producer, a major oil exporters. So on one side of

things, higher oil prices do certainly help oil company profits to increase government royalties, all that kind of stuff. But, you know, they squeeze people at the pumps. And if you're spending more on gasoline, you are probably spending less on other things as well. So you have all of these forces kind of interacting and making it a pretty tough situation for the Canadian economy. So you mentioned earlier that this contraction that we saw in Q1, the 0.1% contraction, missed what analysts were expecting? Can you tell me what were analysts expecting to happen this quarter? Yeah, so both Bay Street economists in the Bank of Canada were expecting 1.5% annualized growth in the quarter. I don't have to tell you there is a big difference between 1.5%

growth and a 0.1% contraction. So a big miss, you know, that came from a number of things. It came from things like ongoing contraction in business investments. There is a overall decline in what they call domestic demand, which is kind of a big catch-all term. There's a bunch of idiosyncratic things going on as well. Like the biggest things that actually swung the numbers negative was your net export number. It's getting nerdy for a second. But one of the components of the GDP calculations, is your net export. So if you import more than you export, you actually have a negative number. If you export more than you import, it's positive. And it adds to the GDP calculation. In the quarter, we saw a big jump in imports. Strangely enough, led by gold with usually a

cold exporter. Why gold suddenly jumped doesn't import this quarter? I actually haven't figured out yet, so I can't tell you. But point being, you had a big jump in imports while you had a small decline in exports. So you had a significant drag on the GDP number from. from that net export number. You also had some weird idiosyncratic things. Like the government's been spending a load of money on weapons as it ramps up defense spending for the last year or so. That dropped in the quarter.

So strange things happening in the data. You know, on the business investment side, you had an increase, strangely enough, in investment in machinery and equipment, but you had a very sizable drop in investment in engineering structures. So,

you know, netted out that meant you had another quarter of negative business investment and that's five quarters running. And that's like if you want to really see, you know, where the rubber hits the road, look at the bad business investment numbers, look at the high unemployment numbers. And that'll tell you a story of an economy that's not very hot right now. Yeah. And we'll get into the to the labor market in a minute. But I actually want to just kind of stick on this point about the recession and what economists look at. Because what you're kind of describing here is not a good picture. So who makes the call

or what do economists look for in order to determine whether or not we're in a recession? Yeah, in Canada, we kind of have an unofficial arbiter of recessions, and that's the C.D. Howe Institute, they have a business cycle, counsel. They will make a call eventually on whether this amounts to a recession or not. I spoke the other day to the CEO, Jeremy Cronic, and he said, you know, we're probably not ready to make a recession call yet. We want to see another quarter of negative growth, GDP growth. We probably want to see unemployment rising a bit more. His main point was like, I'm not telling you the economy's good, but given the relatively small to kind in Q1 and the possibility of revision, you know, he wasn't comfortable calling it yet. So,

so that's one arbiter of recessions. You know, you can look to what Bay Street economists are saying. I will tell you on Friday when I was writing on this, I get lots of economist notes that come into my inbox. Not a single one said this was recession. Pretty much everybody had the same comment, which was data looks bad. Don't want to sugarcoat it. But not comfortable calling using the R word yet. And to be clear, what you need to see is a pervasive decline, a significant decline and an extended decline. And so you want to see it a big drop. You want to see it hitting a bunch of sectors. And you want to see it lasting for a long time. So, you know, sometimes it's not super clear cut what to call a recession or not. There's some good

examples in recent history, you know, at the beginning of the COVID pandemic. Technically, the economic contraction only lasted for two months. Now, that did happen over two quarters because it was in March and April, so you had Q1, Q1, Q2. But technically, you only had two months of contraction, and then the economy started to grow again. But boy, that was a very, very big contraction, as we all know, and we all lived through. Nobody is debating whether that was a recession, even though it only lasted two months. You have another example in 2015, where you had a big drop in global oil prices that hit Alberta, other oil-producing provinces like Newfoundland, particularly hard. The C.D. Howe Institute ultimately decided it wasn't a recession,

even though it did produce two quarters of falling GDP. Their reason for thinking of that was, you know, while the GDP hit was big, it was concentrated regionally in Alberta and other oil producing provinces, and it was concentrated sectorally, essentially in the oil sector. And so they ultimately said, you know, two quarters of declining GDP, even if some people want to use the technical recession term didn't amount to an actual recession. So, you know, there's no hard and fast rules. The two-quarter decline is a nice rule of thumb, you know, technical recession. You can argue about it. You know, I don't want to sound overly pedantic. Some people think it's a useful term. But it is a rule of thumb and it's a starting point to assess the economic data rather than kind of a hard and fast rule,

saying that you are indeed in a full-blown recession. We'll be right back. So, Mark, we've laid out that economists aren't calling this a recession, at least not yet, but that the economy is stalling, which isn't good, of course. So we know that a big piece of this puzzle is the labor market. What are we seeing in the labor market right now? I mean, labor market's weak, to put it simply, unemployment is currently 6.9%. We will get new labor market numbers on Friday, so it'll be interesting to see what the May data shows. But yeah, currently unemployment is 6.9%. You know, that's, you know, in a normal situation, in Canada, you're probably around 5%. So that's elevated.

Young people are getting hit particularly hard. Youth unemployment is, you know, hovering around 14%. That's bad. The Bank of Canada Deputy Governor Nicholas Vonsal gave a really interesting speech last week in which he said we're in what is basically a low, higher, low fire labor market. So companies aren't necessarily laying people off. mass, although there are definitely layoffs in some of the hardest hit sectors in the trade war. But in general, the bigger problem is companies don't want to hire new people. That's particularly tough if you're fresh out of school.

If you're a young person, you're looking for a job. We're in a situation where the economy is not generating a huge amount of opportunities for those young people. There seems to be mismatch between the skills that employers are looking for and the skills that workers have. bubbling in the background, you have the possibility that AI is displacing a whole bunch of jobs, especially kind of entry-level jobs. Yeah, what do we know about that?

Like, can you explain a little bit more about that point? Because I think that's what's probably on people's minds, especially when we talk about young workers here, is like, how does AI factor into this? So, yeah, what do we know on that front? I mean, AI is at the heart of all the conversations we're having right now about the labor market. You know, there's the big worry that a lot of entry-level jobs in, you know, things like coding, you know, maybe even more complicated things like legal research are going to get replaced by AI. The numbers so far suggest that hasn't happened to a huge extent in Canada. There is slow hiring in those kind of entry-level jobs in coding, but you're also not yet seeing huge layoffs.

You know, we've probably read big headlines from the U.S. about, you know, major tech companies and banks and such, you know, cutting their workforce to replace it with AI. We haven't seen that happen en masse in Canada yet. So the data doesn't really show that. But it is certainly something that is being watched. It is something that has the potential to have a major impact, especially on young people and the kind of career opportunities that they may be able to pursue. Of course, a big factor here is trademark, right? The reason why a lot of places are not hiring is because of the uncertainty around trade and tariffs with the U.S. And I mean, we even heard Wednesday that Trump proposed a new 10% tariff on Canada and other trading partners, of course, excluding things that are in USMCA.

But just to say that the uncertainty continues, so how has the relationship between the two countries played into what's going on in the labor market? I mean, it's not just the labor market. You can look at the business investment statistics. You can look at even the productivity numbers. Like, you can look at a whole range of things and see like in red ink all over it, trade war in bold letters. It is the factor that is that is defining the country right now. And uncertainty around access to the U.S. market is is having a huge impact. You know, it's not just the sectors that we all know about that are being hit directly. It's the fact that if you do not know what tariffs are going to be tomorrow, if you do

don't know what Donald Trump is going to tweet or post on truth social at five in the morning, am I going to go out and, I don't know, spend five million bucks building a new factory or hiring a bunch of new workers? Like, I'm probably not. And so that uncertainty is the kind of frame to understand everything that's going on in the economy right now. And getting to some sort of solution on that uncertainty is a big priority. There's a couple ways we could get there, you know, we're back into discussions about renewing the Continental Trade Agreement, the USMCA. Technically, that's up for a review on July 1st. It's pretty clear at this point that we're not going to renew it for 16 years on July 1st.

The agreement is going to go into a 10-year period of annual reviews. We're going to keep on smashing our heads into one another for an extended period of time. So hoping for uncertainty in the near term out of the USMCA, I think, might be a bit of a fool's error. So as we know for Prime Minister Mark Carney and his goals here, the economy has always been his big focus, right? So this contraction, these contractions that we've seen are not a positive thing for the government. What has Mark Carney said about these recent numbers? He addressed the numbers on Tuesday, basically said, look, we're being buffeted by lots of economic forces. It's going to be bumpy.

He also leaned heavily on the population decline as an explanation for, you know, we had seen those contractions in build GDP numbers. And, you know, he's right on both those fronts to a certain extent. I mean, I think a big challenge for the current government is, you know, they have a very economic focused agenda. They're trying to stand up all of these new infrastructure to get commodities to the West Coast. They're trying to build new mines, stand up new pipelines, really try to push more Canadian products into global markets.

That's kind of the core of the current economic agenda. But that all takes a lot of time. We're talking years and years to build pipelines, to build mines. And the trade war is hitting out of the country right now in real time. So you have kind of this timing problem where all of the things they're trying to do to react to the trade war is going to take an extended period of time to start showing up in the GDP numbers, whereas the impact on business investment and the impact on exports from the uncertainty and from the tariffs is hitting us right now. Not surprisingly, leader of the opposition, Pierre Poliev, has pointed the finger. at Mark Carney as the reason that our economy is doing poorly at this moment. What do you make of Pierre Polyev pointing the finger at Mark Carney? Yeah, I mean, he's doing exactly what a opposition

leader should be doing. You know, you get two quarters of negative growth. You get lots of headlines of technical recession. That is gold if you're in opposition. You know, Polyev has had a bit of a difficult time kind of owning his traditional area of strength, which is, which is the economy. Kearney is polling very well. Everybody is focusing on the U.S. trade war stuff. You know, all the headlines around technical recession give him a very strong opening to try to get and make his point that, you know, try to knock Kearney down a few rungs as an economic manager. So, Mark, we spend a lot of time talking about the situation right now in Canada's economy and whether or not we're in recession. And what we have laid out is that it's not a good time for Canada's economy. But what do we know about how. people are feeling in this moment and how these issues around high gas prices, people struggling to find a job, like how do these issues color our understanding of where the economy is at? Yeah, so whether or not you call it a recession, it's doubtless a pretty tough time for a lot

of Canadians. It depends to a certain extent where you are in the economy. Are you a young person trying to find a job or are you happily employed? Do you own a big stock portfolio? Because if you own a lot of stocks, you know, equity markets are hitting record highs. you're laughing right now. If you don't, then you haven't been able to kind of ride that up. You know, pretty much everybody is seeing the impact of those higher gas prices on their weekly

budgets. Food inflation remains pretty high. So there's lots of things that people are being squeezed at from multiple different angles. You know, as economists will tell you, people, how people feel about the economy, you know, that actually has a real impact. You know, if you're feeling bad, if you're feeling like things are tight, then maybe you're not going to spend as much. Maybe you're not going to go look for that new job. So there is a way in which expectations and understanding of how the economy is does actually shape aspects of the economy itself.

And so to a certain extent, you know, the R word matters. But in a lot of ways, you know, it's the things on the ground that the people are feeling that they really matter. Just one final question for you, Mark, because you are our economics reporter. What will you be watching for in terms of where the economy is going? and whether or not we are headed into a recession? Yeah, I mean, the first thing is, so what happens with that GDP number when it gets revised? You know, does it get revised up? And then that technical recession discussion disappears or does it get revised down and we're still talking about it?

You know, this Friday, I'm going to be looking at the labor market numbers next week. I'm going to be watching what the Bank of Canada has to say about it all. They have a rate decision on Wednesday. Pretty much assumed that they're going to hold interest rate steady. You know, there was a lot of chatter earlier in the year when oil prices were rising that the BOC may start hiking probably not now, but maybe later in the year. But with all these signs that the economy is flatlining, I'd be very surprised to see the BOC hike anytime in the coming months. And then ultimately, I'm looking at what happens on the big kind of geopolitical things. So what's happening in the Iran War, what's happening to global oil prices?

and crucially, what is happening with Kuzma, USMCA. The conversations that Dominic LeBlanc and his trade team down in Washington are having right now are going to shape the structure of the Canadian economy for decades to come. Those conversations are live. Those conversations are very intense. Those negotiations will be tough. But that is, that's where a lot of the focus will be on the coming ones. Safe to say, there's lots to watch for.

And Mark, I know we'll have you on very soon to talk about the USMCA. Thank you so much for coming on the show today. I can't wait for it. See you again. That was Mark Rendell, the Globe's economics reporter. That's it for today. I'm Cheryl Sutherland. Cynthia Jimenez is our associate producer and intern. Ali Graham mixed this episode. Our producers are Madeline White, Rachel Levy McLaughlin and Mikhail Stein.

Our editor is David Crosby. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening.