The latest economic forecasts from TD Bank, BMO, National Bank and Deloitte all suggest that Canada could be heading towards a recession this year.
Those financial institutions predict that Canada’s gross domestic product (GDP) will shrink in the second and third quarters of 2025. Two quarters, or six months, of negative economic growth meets the traditional definition of a recession, although there are many other indicators. A recession is essentially a temporary period of economic decline characterized by reduced spending, a drop in business activity and a rise in job losses.
Dalhousie University economics professor Lars Osberg says GDP changes don’t provide a full picture and Canada could already be in the midst of a recession.
“The unemployment rate’s been ticking up for some time, labour force participation is trending down, average income is declining,” Osberg told CTVNews.ca. “We’ve been in that situation for a little while. The trade war comes along and makes it a whole lot worse.”
U.S. President Donald Trump’s tariffs have upended international trade and pushed up prices. But even if Canada is able to come to a quick agreement with the U.S. on a new trade deal, the uncertainty created by Trump could still linger.
“The impact of tariff uncertainty on investment is going to depress economic activity going forward even if we manage to design a new agreement, because we don’t really know how long that agreement is going to last,” Osberg said. “Suddenly in the last few months, we’ve had a massive increase in uncertainty.”
Recession and job losses
TD Bank chief economist Beata Caranci recently warned that tariffs are driving Canada towards a recession in 2025, which could lead to approximately 100,000 job losses. According to the latest Statistics Canada data, the unemployment rate continued to rise in April to 6.9 per cent, which represents roughly 1.5 million people.
“The problem that the Bank of Canada and the government is facing is that a trade war, a tariff war, is affecting both inflation and unemployment in negative ways,” Osberg said. “We get higher unemployment because we’ve got lower investment, lower exports, less consumer spending; and we get higher prices because of course the tariffs are bumping up prices.”
According to TD’s forecast, Canada’s GDP will shrink by 1 per cent in the second quarter of 2025, and 0.2 per cent in the third quarter. BMO puts the decline at 1 per cent in both quarters. The National Bank forecasts the largest decline at 1.1 and 1 per cent. Deloitte forecasts a similar GDP drop of 1.1 and 0.9 per cent.
That assessment is not shared by other major Canadian banks like RBC and Scotiabank, which forecast low but positive growth in both quarters. CIBC meanwhile is forecasting only one negative quarter.
All predict a return to positive GDP growth in the first quarter of 2026.
Economic slowdown, not a recession
Concordia University senior economics lecturer Moshe Lander also doesn’t predict Canada will enter a recession, but he says we are in the midst of an “economic slowdown.”
“That doesn’t necessarily require two consecutive quarters of declining GDP, just we’re not going to grow as fast as we could, should or did,” Lander explained. “The stock market could soften, the housing market could soften, the labour market could soften. We could start to see be more and more people caught up in financial distress because of job losses, or that their income isn’t growing as fast as it otherwise could or should.”
Like Osberg, Lander says Canada’s economic problems were not created by the Trump administration.
“We probably would have experienced a slowdown anyway, it’s just we’re experiencing a more severe slowdown or a more sudden slowdown because of the tariff talk,” he said. “So it is certainly a major contributor, but the economy was already showing signs of stress.”
Lander says the difference in economic forecasts boils down to it being an “imperfect science.”
“It’s the joke among economists that they’ve successfully predicted nine of the last five recessions,” he said. “Inherently there’s going to be variability… those could be things like, how long do they think the tariffs are going to last, or how high are they going to go?”
York University associate economics professor George Georgopoulos says recent deals with countries like the U.K. show that U.S. trade tensions could be thawing.
“While I expect GDP growth to slow down in Canada over the second and third quarter, I do not expect negative GDP growth in either quarter,” Georgopoulos told CTVNews.ca. “The environment now is more conciliatory and open to a healthy discussion on reducing tariff rates.”
