Recession is Here: Canadian Economy to Shrink for Two Straight Quarters—Deloitte

Canada is set to enter a technical recession in the second quarter of 2025, according to a new Deloitte Canada outlook. The position projects consecutive quarters of negative GDP growth driven by plummeting business investment, rising unemployment, and trade-related uncertainty.

Deloitte forecasts real GDP will contract by 1.1% in Q2 and by another 0.9% in Q3—meeting the standard definition of a recession.

“You certainly can see certain parts of the economy that may remain under significant downward pressure,” commented Dawn Desjardins, chief economist at Deloitte Canada, adding that Canadians need to brace for “really soft economic activity over the next six to eight months.”

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Business investment is expected to be a primary drag, falling 11.5% in the second quarter and another 3.5% in the third. This aligns with Bank of Canada survey data showing that 22% of firms intend to cut back on capital expenditures.

Deloitte also projects the unemployment rate will surpass 7% in 2025, with roughly 75,000 job losses anticipated, primarily in export-sensitive sectors like manufacturing, steel, and aluminum.

Despite the bleak near-term outlook, Deloitte projects a modest rebound by Q4 2025, with annualized GDP growth recovering to 2.4%. However, the firm flags major downside risks—chief among them the potential loss of Canada’s CUSMA carve-out, which could erase preferential US market access. If revoked, Deloitte warns, Canada’s real GDP could be permanently 3% lower by 2030.

However, the outlook also frames the economic turbulence as a potential turning point for addressing Canada’s structural weaknesses—especially lagging productivity, internal trade barriers, and over-reliance on the US market.

“Maybe this crisis… is just the catalyst we need to finally hammer down some of these factors that could really just make us more resilient,” Desjardins concluded.

Information for this briefing was found via Financial Post and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.