C.D. Howe panel says economy shrank in Q2 but no recession yet

Canada’s economy contracted in the second quarter of 2025 but has not entered a recession, according to the C.D. Howe Institute’s Business Cycle Council.

In a communiqué released Sept. 22, the council said real GDP declined 0.4 per cent in the quarter, led by weaker exports and lower investment in machinery and equipment. The Bank of Canada has since cut its policy rate, as slowing growth and weak labour data raised recession fears.

While one quarter of contraction meets a necessary condition for a recession, the council said the downturn was not yet “pronounced enough nor prolonged enough” to qualify.

The group highlighted ongoing labour market weakness, noting employment fell by 66,000 in August and unemployment climbed to 7.1 per cent, the highest since August 2021.

“While the Canadian economy is under clear stress, the current contraction does not meet the definition of a recession with the data we have available,” said Jeremy Kronick, the institute’s vice-president of economic analysis and strategy and co-chair of the council. “We are monitoring developments closely, and will reconvene if the data show further deterioration.”

The council said it will revisit its assessment if GDP falls again in the third quarter.