Canada moves into a technical recession, but retail sector sees quarterly growth

Canada’s latest GDP reading confirms what many Canadians have already been feeling—the economy has stalled and the country is now in a technical recession, says CPA (Chartered Professional Accountants) Canada.

“The data shows an economy that is losing momentum and struggling to find a clear source of growth,” said CPA Canada’s chief economist David-Alexandre Brassard. “Canadians are continuing to spend, supported by strong wage growth, but job creation has yet to pick up meaningfully in 2026.”

Household spending continued to hold up despite broader weakness across the economy. Ongoing uncertainty continues to weigh on business investment, while a weaker housing market is dragging down residential investment. A temporary boost from businesses in North America rebuilding depleted inventories helped offset some of this weakness, said the CPA.

“Consumers are carrying more of the load, at the expense of savings and increasing financial strain. And that is not entirely sustainable,” said Brassard. “Stronger investment and government spending are needed to offset slowing momentum elsewhere in the economy because right now Canada is lacking a clear engine for growth.”

Looking ahead, the outlook remains weak, Brassard added. Higher oil prices in April may provide some support, but that benefit could be offset by tougher U.S. sectoral tariffs. Meanwhile, labour market data suggests employers remain cautious amid ongoing uncertainty despite wage growth supporting consumption for now.

This weaker-than-expected data is likely to be noted by the Bank of Canada and could keep policymakers on the sidelines through 2026, said the organization.

Statistics Canada also reported that retail trade rose 1.0% in the first quarter, with health and personal care retailers (+3.5%) and general merchandise stores (+3.2%) contributing the most to the sector’s quarterly growth.

But it also said the retail trade sector contracted 0.6% in March, partially offsetting the back-to-back monthly expansions in January and February.

“General merchandise retailers (-2.7%) contributed the most to the decline in the sector in March, the first contraction in six months. Retailing activity at building material and garden equipment and supplies dealers (-3.0%) was another large contributor to the decline. Gasoline stations and fuel vendors (-1.9%) further added to the decline in the retail trade sector, coinciding with a jump in gas prices, arising from the supply shock caused by the conflict in the Persian Gulf,” noted the federal agency.

Statistics Canada said household spending rose 0.4% in the first quarter of 2026, following a 0.7% increase in the fourth quarter of 2025. Growth in the first quarter was led by higher spending on financial services and food. Meanwhile, fewer Canadians travelling abroad as well as decreased purchases of new vehicles tempered the overall growth in household consumption expenditures, it said.

“The household saving rate slowed to 3.5% in the first quarter of 2026, the lowest rate since the first quarter of 2024, as disposable income increased 0.6%, while nominal consumption expenditure rose 0.9%. Although compensation of employees increased in the first quarter of 2026, declines among other income sources weighed on disposable income, including self-employment income (termed net mixed income), net investment income (termed net property income) and net receipts of current transfer,” explained Statistics Canada.

“Net property income declined 0.6% in the first quarter of 2026 due to a combination of reduced investment earnings and higher interest payments. Household investment earnings (i.e., property income received) declined 0.1% in the first quarter, due mainly to lower returns on interest-bearing instruments. Household property income paid, comprised of mortgage and non-mortgage interest expenses, increased by 0.7%, marking the first increase since the second quarter of 2024. The Bank of Canada policy rate was unchanged during the first quarter of 2026, in contrast with its numerous reductions over the past two years.”

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• Jobs in retail and hospitality sectors continue to decline: Statistics Canada