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Canada’s consecutive contractions in gross domestic product in recent quarters sparked some concerns about whether the economy had entered a recession. We don’t back that view, nor does the C.D. Howe Institute Business Cycle Council, responsible for formally dating Canadian recessions.
A core reason for looking beyond GDP growth is the sharp swings in population growth Canada has experienced. These continue to disrupt traditional interpretations of data. Notably, the past two quarters of GDP decline both coincided with population declines—the first on record since the 1950s.
While the total pie shrank, real per-person growth has continued to expand. This matters because per-capita measures better reflect how households and workers experience the economy. Between 2023 and 2024, per-person GDP declined persistently while headline GDP was overstating economic health.
Now the opposite is true: Headline GDP looks worse than reality, while Canada’s in early-stage recovery from a soft patch that began in early 2023.
To assess the current situation objectively, we examine economic data compared to previous recessions. We found that once accounting for population growth shifts, the economy looks more consistent with an early-stage recovery than a sharp, synchronized contraction typical of a recession.
That said, structural challenges persist. Weak business investment, a multi-year real estate slowdown, and rising living costs—particularly for lower-income Canadians—all warrant attention. Risks around the conflict in the Middle East and U.S.-Canadian trade tensions also remain heightened, clouding over the outlook for a per-capita economy that has proven relatively resilient so far.
Per-capita industry GDP
Industry GDP data on a per-capita1 basis is looking more resilient in 2026. Services sector output remains robust, supported by solid household spending. Goods-producing sectors, particularly manufacturing, showed softness from persistent U.S. tariffs weighing on foreign demand.
- Monthly population statistics for per capita data from the Labour Force Survey were pulled forward by two quarters to account for methodologies used to capture changes in non-permanent resident population in the survey, and better align with actual demographics data. ↩︎
Labour market data
Both the employment and unemployment rates in Canada better reflect the per-worker experience in the labour market than headline job figures that are heavily distorted by population growth.
These measures have stabilized over the last year rather than deteriorated, amid a stagnant job market that both the BoC and we have characterized as “low hire, low fire.” Permanent layoffs have declined more recently—a contrast to prior downturns, including 2023 when they rose persistently.
GDP diffusion measures
Finally, a recession generally means contractions in economic activities that are deep, persistent but also broad-based. For the last criteria, C.D. Howe computes a diffusion index that aims to measure the scope of contraction in real GDP across different industries.
By our calculation, the diffusion index calculated using headline industry GDP data points to mostly fluctuations in recent years. That same index calculated using per-capita industry real GDP, however, shows a sharp deterioration in 2023, similar to ones observed during the 2008 Global Financial Crisis and the 2020 COVID-19 recession, followed by a persistent recovery in the years after.
These trends are once again consistent with the assessment that rapid population increase in 2023 masked weaker broad-based activity per person. It’s the opposite to recent trends, where slower population growth is weighing on headline GDP, concealing underlying economic resilience.
About the author:
Claire Fan is a Senior Economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.
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