Economists Divided as Canada Faces Risk of Recession Amid Trade Uncertainty
TORONTO, ON – As global economic pressures mount, leading Canadian financial institutions and economists are increasingly warning that Canada may be on the brink of a recession in 2025, while others suggest the country is experiencing a severe but temporary economic slowdown.
Recent forecasts from TD Bank, BMO, National Bank, and Deloitte all predict consecutive quarters of GDP contraction in the second and third quarters of 2025—a key indicator of recession. TD expects GDP to shrink by 1.0% and 0.2% respectively, while National Bank projects a 1.1% and 1.0% contraction. A recession is typically defined as two consecutive quarters of negative growth, although economists stress that other indicators must be considered.
Dalhousie University economist Lars Osberg says Canada may already be in recession based on broader metrics. “Unemployment has been rising, labour force participation is down, and average income is falling,” he noted. “We’ve been in that situation for a while—and the trade war just makes it worse.”
The Canada-U.S. trade relationship, disrupted by U.S. President Donald Trump’s tariffs, is adding to economic uncertainty. While a new trade deal may still be negotiated, Osberg warns the ongoing volatility discourages investment and drags on consumer confidence. “We’ve had a massive increase in uncertainty,” he said.
TD Bank Chief Economist Beata Caranci recently warned that the tariffs alone could result in the loss of 100,000 Canadian jobs. April’s unemployment rate rose to 6.9%, affecting an estimated 1.5 million Canadians.
The dual pressures of inflation and job losses are making monetary policy more challenging. “A trade war affects both inflation and unemployment in negative ways,” Osberg explained. “Tariffs raise prices, and investment falls.”
However, not all forecasters share the recession outlook. RBC and Scotiabank are forecasting modest positive growth in both quarters, while CIBC expects only one quarter of decline. All major banks anticipate a return to positive growth in early 2026.
Some experts argue Canada is experiencing a slowdown rather than a recession. Concordia University lecturer Moshe Lander described the current phase as an “economic softening”, with slower growth across markets, from housing to employment.
“You don’t necessarily need negative GDP for a slowdown. It’s about growth being well below potential,” Lander said. “The Trump tariffs are a major contributor—but the economy was already showing signs of stress.”
York University’s George Georgopoulos remains cautiously optimistic. “Trade tensions may be easing,” he said, citing Canada’s recent bilateral deals with the U.K. “While growth is slowing, I don’t expect negative GDP.”
Ultimately, economists agree that Canada’s outlook hinges on global trade dynamics, investment confidence, and how long tariff uncertainty persists. The Bank of Canada and federal government are expected to monitor conditions closely as policy options are weighed in the months ahead.