1. Technical recession - but it could be worse
Prime Minister Mark Carney has committed to revitalizing Canada's economy, aiming to make it the "strongest in the G7." Over the past year, he has traveled internationally to attract business investment to Canada. Despite these efforts, the Canadian economy is facing difficulties, including tariffs affecting certain sectors and challenges for younger Canadians in employment and housing affordability.
Economic growth in Canada is forecast at 1.6% for this year by the International Monetary Fund (IMF), trailing the United States but surpassing European G7 countries. The Organisation of Economic Co-operation and Development (OECD) anticipates a modest GDP growth improvement to 1.7% by 2027 as the economy recovers from the slowdown caused by US tariffs.
Statistics Canada recently reported that the country experienced a technical recession, defined as two consecutive quarters of GDP decline, during late 2025 and early 2026. Economists advise caution against alarm, suggesting a prolonged downturn is unlikely.
"Whether one chooses to divine the fact that we're in a recession or not really does miss the point," said Jeremy Kronick, president of the CD Howe Institute, a non-partisan economic think tank.
"I mean, it, the economy is weak, right?"
2. Rising inflation and pocket book pain
Cost of living remains a significant concern for many Canadians. A recent poll by the Angus Reid Institute found that 61% of respondents identified inflation as their top worry, surpassing concerns about housing affordability, crime, and US tariffs.
Inflation rose to 3.2% in May from 2.8% in April, primarily due to increased energy prices, especially gasoline, influenced by the Iran war's repercussions. Although inflation remains below the post-pandemic peaks of 7% to 8% seen in summer 2022, it mirrors trends in other wealthy nations, aligning with rates in major European economies but remaining lower than in the US.
"It is clear that inflation does cause hurt for a range of people, and that the majority of us see that inflation as we go to a grocery store, we see our energy prices inflate," said Paul Kershaw, founder of the generational fairness advocacy group Generation Squeeze, and a professor at the University of British Columbia.
3. More equity for some, higher debt for others
Kershaw described rising housing costs as a "third kind of inflation," which has increased equity for current homeowners but excluded many, particularly younger Canadians, from the market.
He noted,
"There are Canadians who are doing just fine, who've actually probably gained wealth over some of these harder years... and who are managing the frustrations that come with higher food costs and higher energy costs."
Canadian households carry the highest debt burden among G7 countries, largely due to mortgage debt, which analysts argue contributes to net worth growth. The remainder consists of consumer credit and other loans.
The Angus Reid survey indicates that 70% of Canadians rate their household finances as "good" or "very good," while 27% describe their financial situation as poor and express greater pessimism about their financial future. Another Angus Reid survey found that over one-third of Canadians find their current financial situation tough or very difficult, increasing to 45% among renters. Those with mortgages and household incomes below C$100,000 (£53,400) also face financial stress.
4. Many younger Canadians are struggling
Canada's overall unemployment rate was 6.6% in May, with youth unemployment at 13.4%. Although this marks the first decline since January, it remains above the pre-pandemic average of approximately 10%.
"We are at a moment where the economy disproportionately isn't working for younger people, and some newcomers of any age," said Kershaw.
He argues that Carney's plans to enhance economic productivity and resilience through infrastructure investments and defense spending may not address the immediate financial challenges faced by many Canadians.
Carney has acknowledged affordability issues, recently introducing a one-time grocery benefits payment for eligible Canadians, but has urged patience.
"This government's been in the process of laying the foundations for a stronger, more resilient, more independent Canadian economy," Carney said earlier this month.
"That process is settling in during that time as the major investments, major changes to how the government operates, how we do major projects, how we have new trade agreements with other countries."
The Liberal government aims to double Canada's non-US exports over the next decade by expanding trade relationships in Europe and Asia and to expedite major infrastructure projects.
Dave McKay, CEO of the Royal Bank of Canada, cautioned during a Bloomberg-hosted talk that time is limited.
"We have to see tangible progress on a couple of these big ideas," he said. "The capital is impatient, and it will move where it thinks they can get the most sure and fastest return."
Kronick also highlighted uncertainty with the US, Canada's largest trading partner, as an additional challenge.
5. Canada still depends on US trade - and Trump
James White, president and CEO of Wellmaster, an Ontario-based family-owned company manufacturing products for drillers, stated that 60% of the firm's profitability depends on access to the US market. Since the onset of the US-Canada trade war last year, sales have declined by 20%, affected by US tariffs on steel derivatives and Canada's retaliatory tariffs.
"I'm being pulled down in my ability to make investments in my people and my technology and my equipment. That's not happening with my competitors," White said.
Canada's proximity to the US results in unique tariff impacts. Over 70% of Canadian exports go to the US, and their economies are deeply integrated. While most products are exempt from tariffs under the USMCA agreement, the US has imposed tariffs ranging from 15% to 50% on steel, aluminum, and copper, and 25% on vehicles.
"What's key is just that there are these different parts of the economy or the country that are affected differently," said Kronick.
"We've seen big changes in [auto hubs] Brampton and Windsor and changes where steel, aluminum, and autos are all impacted. I think they're experiencing it far more acutely than, perhaps, people in downtown Toronto."
Ottawa is negotiating with the US to reduce these sectoral tariffs and to review the USMCA but has yet to reach an agreement.
"I think at this point most people expect there to be some tariffs on whatever a deal looks like, but I think what's necessary now is just to know what that is, right?" Kronick said.
"If I know it's 10% fine, it's a 10% tax, and I can make my adjustments to my business accordingly, and we move on."
Kronick identified structural issues contributing to economic stagnation, including interprovincial trade barriers such as differing trucking regulations and professional licensing, as well as a tax system that has become "uncompetitive" compared to other jurisdictions.
Despite challenges, Canada possesses fundamental strengths.
"If you were drawing up a country from scratch, a well-educated, well-resourced, not overpopulated country would be what you would want, right? So, I think Canada has all those things, all those features," he said.
"I think we just have to unlock them."
