What is going on with the Canadian economy? | Power & Politics

Added: 2026-05-31

[00:00:00]Canada's economy has unexpectedly ground to a halt and slipped into a technical recession. New numbers from Statistics Canada show GDP shrank in the first quarter of the year at an annualized rate of 0.1%.

[00:00:12]That's not much, but it does mean a second straight quarterly contraction, which meets the definition of a recession.

[00:00:20]Here to help us understand the numbers is a CBC senior business reporter, Peter Armstrong. He's in Toronto for us tonight. Well, that was a big surprise.

[00:00:27]Peter, what happened?

[00:00:29]I mean there's two kind of answers to that. One is why did the economy contract, right? Like what we saw in in March, it came down 0.2% in the quarter.

[00:00:39]It's down zero or 0.1% March, 0.2% on the quarter. But the other part is why it was such a surprise, right? We were expecting to see 1.5 1.6% growth on the quarter. So between those two is why it sort of left our heads spinning this morning. The the first one, why did the economy shrink? It's the same story we've been talking about for a year now, right? And it's all trade related and we have seen exports fall and there's the the defining characteristic of the Canadian economy right now and has been and will continue to be for some time weakness and and we've seen that right across the board. And so this is just a continuation of that. Three of the last four quarters have been negative. Over the whole last year, 12 months, we haven't seen any growth. It's actually been a slight contraction over that time. So JP, the the the story here is that the weakness in the Canadian economy got a little bit worse. It's certainly not getting any better and that's a problem. The expectations were a little bit out of whack and I think that's a broader conversation about how we try to calculate government spending and stuff like that. But the upside of all of this, of course, is that the advanced estimate for April show a pretty good bounceback. Why? Because the price of oil went through the roof and that's good for Canadian exports and so we'll see a bit of a surge there.

[00:01:53]Capital Economics had a great note that said, "Yes, it's probably a technical definition, but if you you know, if you look at the numbers for April and May, we're already through it." But the the thing is that that I think this confirms what people have been telling me for a year now that it feels like a recession out in the Canadian economy. And I keep saying I get why it feels like that, but we've avoided the technical definition of a recession. At least I was proven wrong. They were proven right. And that's what these numbers tell us today.

[00:02:19]So what does this tell us about the broader state of the Canadian economy especially as we kind of hurdle towards those CUSMA review talks?

[00:02:26]>> So I I think that second part of that the trade talks loom really large on these numbers because you know we talked to Doug Porter from Beimo who says the primary driver of all this weakness is the trade war and and we know that we have known that anybody who's caught up in the sectors of the economy that are getting hit by tariffs and not just the tariffs but all of the uncertainty that come with them they can tell you that they've been telling us that for a year.

[00:02:47]Uh and so while there is a sense that yeah yeah this isn't a cliff it's a uh it's a checkpoint uh that the July 1st isn't you know isn't going to change anything really fundamentally for the state of Kuzma that it'll just roll over into these yearly negotiations if we can't get a deal. The fact is the lack of progress on a deal has been hurting the Canadian economy is preventing that that business investment certainty that's needed to get money flowing into the Canadian economy. and getting any kind of progress on that file over the next month as we wait for that July 1st deadline is really crucial for Canadian businesses that are really struggling that are caught in the middle of this but Canadian households too that are having a hard time keeping up with the damage done to the Canadian economy the damage done to their pocketbooks and what this means to the Canadian economy moving forward.

[00:03:34]>> All right, thanks Peter. The CBC's senior business reporter Peter Armstrong. Thanks Peter.

[00:03:38]>> Yeah, you bet. Conservative leader Pierre Polyv is pointing to Prime Minister Mark Carney's leadership as the reason for the recession.

[00:03:46]>> He's been Prime Minister for four quarters now. The economy has shrunk in three of those quarters. He's the only G7 leader who can say that.

[00:03:55]>> Canadian understand that the world is facing some headwind. Canadian understand, Mr. Speaker, in the words of the International Energy Agency that we have the most severe energy crisis in the world. If it really is global factors and tariffs that have given Canada the only recession in the G7, why have France, Italy, Japan, Germany, the United Kingdom, and the United States all avoided a recession?

[00:04:24]>> On this side of the house, Mr. Speaker, we're going to keep on working to build the strongest economy in the G7.

[00:04:31]>> For more on this, I'm joined by Mark Dormo, vice president of policy at the Business Council of Canada. Nice to see you, sir. Thanks for coming in.

[00:04:38]>> Great to be here.

[00:04:39]>> So, the country has slipped into a technical recession. It looks like two consecutive quarters of negative growth.

[00:04:44]Um, what's notable is that it also sort of underperformed expectations by a lot in the first quarter. If we're to look at some of the figures that are coming out today, what is your read on the numbers that we're seeing from stats?

[00:04:56]Can >> we have seen a technical recession, but in our view, we haven't seen a true recession. In order for that to happen, there needs to be broader based weakness across the economy. So we did have some weakness. We did underperform expectations in the first quarter of this year. But when we look at consumption growth at 1 and a.5%, corporate profits 10% up versus the prior quarter, this really doesn't meet the definition of the breadth of weakness or the kinds of declines in standard of living that we'd expect in a true recession. Yeah, to your point, I mean, some economists are warning that the drop off in GDP in the first quarter was so small that it really could be revised up in the coming months, right?

[00:05:34]I think it was 0.1% decline, right? So, it's it's something that as they go along and they kind of review some of the figures that are coming in, it might actually be higher than that. Uh, and it's really such a small number that it's it's not necessarily a major problem, but when you look at the last, you know, four quarters, three of them, there was potentially negative growth.

[00:05:55]Is there uh some warning signs that you're seeing? Is the Canadian economy in more trouble than perhaps you want to admit?

[00:06:02]>> I'd say two things. The first is that we have to look at GDP per person as well as the headline growth. And given that population growth has been at zero or even negative in the most recent quarter, having flat growth in that context is different than having, you know, one and a half% growth when population growth is 3%. So we've actually seen an increase in GDP per person over the last year which suggests an improvement at least on average in Canadian living standards. But there's no question that there are weak pockets.

[00:06:33]Business investment in particular has been a drag on growth over the last year and that just reinforces the importance of some of the work that the government is doing to try and create a stronger environment for business investment.

[00:06:46]>> What is driving the weakness? I mean you mentioned business investment. We heard from um Conservative leader Pierre Polyv today. He he pointed out that other countries are also dealing with US tariffs, but they haven't necessarily slipped into a technical recession. He's blaming the industrial carbon tax. He says that the anti-development laws are still on the books. You know, C69, some of the things that have held up energy development to this point. He says the deficit is potentially also to blame. Uh is he right that those three things are what's holding back the Canadian economy right now? Is that why things have softened? Let's home in on the numbers that came out today. And when we look at the first quarter, clearly what's happening, business investment has been weak. That is being impacted right now most significantly by uncertainty at the global stage, both in terms of trade policy and geopolitical developments. We also had a weak housing market that was a drag in the first quarter as well. and exports have even though the decline wasn't significant in the first quarter they haven't been very strong over the last year when there has been all that uncertainty about trade policy. So really if we look at this number these numbers that came out today those are the three contributors business investment the housing market and then exports >> on exports obviously we don't have a deal yet with the United States right the KSMA review is still pending the July 1 deadline is fast approaching uh folks are suggesting we're not going to hit the July 1 deadline right because there are still some things to sort out how important is it that we come to some sort of agreement with the Americans soon to avoid potentially more quarters of negative growth.

[00:08:20]>> Vitally important. One of the things that is most important is that we get a timely agreement in place, stabilize the relationship with the United States. One of the biggest drivers, as I mentioned, of the weak economy is the uncertainty around policy that is holding back investment. And making sure that we get an agreement in place starts to alleviate some of that. We don't want to be back in a position where we're renegotiating every few years. We want a long renewal and we want that as soon as possible.

[00:08:50]>> You might have heard the prime minister was in New York this week and he had slightly different tone in terms of his message for the American audience. He was telling uh folks in New York that he is potentially interested in making Canada strong and helping make America great again by doing more on certain sectors, drawing closer to the Americans on some things that he thinks we have mutual agreement on. How crucial is it?

[00:09:13]Do you think that the prime minister I mean you said that Koozma is really important for future growth. How important is it do you think that the prime minister maybe show that he's willing to cut a deal? Because to this point there has been a lot of talk about a rupture with the Americans, right?

[00:09:26]There's been a lot of um trying to take a step back, diversify trade, maybe not going all in on the American market. Do you think coming from where you are that there needs to be sort of a tonal shift in how the prime minister approaches the Americans and what he wants to see out of them? with business council from the start really has talked about a US plus strategy the that means strengthening stabilizing our relationship with the United States they will always be the most important trading partner they they have been for most of our history but that's part of the story the other two planks of the future of the economy are diversifying our trade expanding our access what we sell to other markets around the world Asia Europe and then there's the internal trade story removing the barriers between provinces that's been identified by many organizations including the IMF as something that's been holding Canada's growth back for some time. So it's you know it's US it's diversifying to other markets and it's also removing barriers within the country that are holding back our economic potential.

[00:10:30]>> You mentioned this as you know of course Carney is leaning into major projects right he is even said this week he wants Canada to embrace its identity as an energy superpower. We've seen him fasttrack a new graphite mine in Quebec, for example. The shovels are in the ground on that. They just cut a deal with Germany on liqufied natural gas in British Columbia. Do you think that what they're doing on that front will make a meaningful difference? And beyond the major projects office and some of these things that could be coming online in the medium term, what more do you think the government needs to do to stimulate the economy?

[00:11:04]>> We do think they will make a difference.

[00:11:06]highly encouraged, highly supportive of some of the moves that have been made to accelerate major project development and approval. That has consistently, particularly among our member companies, been identified as a major drag on the Canadian economy, not getting things approved quickly enough, regulations not being in place to uh to support, you know, that that major project activity that that's needed. Uh, look, I think if we're looking at what can be done in the near term to improve the business climate, it really is about renegotiating USMCA, renewing that agreement quickly and for a long time because that uncertainty, the uncertainty around that agreement is the major risk to the Canadian economy right now. Right, let's see there. Mark Dorma, vice president of policy at the Business Council of Canada. Thanks for coming on.

[00:11:55]>> My pleasure.