Is Canada Heading Towards a Recession?

By: Ava Saunders

As of May 2025, signs are pointing toward a possible economic downturn in Canada. GDP growth has slowed to just 1%, and unemployment has risen above 7%, the highest in recent years. Economists warn that the country is cutting it close.

What’s Driving the Slowdown?

Several key factors are contributing to Canada's economic challenges:

• Trade Tensions with the U.S.

  Ongoing disputes and protectionist policies under the current U.S. administration have impacted cross-border business. With the U.S. as Canada’s largest trading partner, even small disruptions impact the economy.

• Weak Productivity Growth

  Despite advances in technology, Canada’s productivity remains sluggish, dragging down long-term economic potential and competitiveness.

• High Interest Rates

  In response to previous inflation concerns, interest rates have remained high, discouraging borrowing and investment in both households and businesses.

How This Affects the Economy

• Consumer Spending is Declining

  Higher prices and uncertain job prospects are making consumers more cautious, especially on unneeded spending.

• Small Businesses Are Feeling the Effects

  With tighter credit conditions and reduced consumer demand, many small and mid-sized business are struggling to stay open.

• Corporate Restructuring and Job Losses

  Companies are starting to cut costs, with layoffs and hiring freezes becoming more common, especially in tech, retail, and real estate sectors.

Looking Ahead

While the federal government has introduced some tax relief and incentives to boost spending and investment, recovery may take time. The proposed Canada/U.S. economic and security agreement could offer some stability if finalized, but the short-term effects remains cautious. Periods of economic slowdown are difficult, but they also force businesses and policymakers to look again at their priorities and focus on innovation. Whether this becomes a mild dip or a recession, the coming months will be critical for shaping Canada's economic future.