Is Canada in a Recession in 2025?

You feel it before you read it. At the grocery store. At the gas pump. In that quiet moment when a client stalls or a sale doesn't close. Canada's unemployment has climbed to 7.1%, construction is stalling, and consumer confidence has collapsed, yet most Canadians refuse to call it a recession. The psychological shift has already happened, even if the official declaration hasn't.

Key Economic Indicators (October 2025):

• Unemployment rate: 7.1% (highest in 9 years)
• Q2 2025: Economic contraction reported
• Construction sector: 1 in 5 builders fear business failure
• Job losses: 26,000 in professional services, 23,000 in transportation (August alone)
• Consumer confidence: Canadians estimate 20%+ probability of job loss vs. 5% a decade ago

What Are the Signs Canada Is in a Recession?

The evidence surrounds us daily. Food bank visits are breaking records. Real estate deals are collapsing, with agents walking away from $100,000 deposits in major markets like Toronto. Unemployment reached 7.1% in August 2025, the highest level in nine years.

A Bloomberg survey of 34 economists in May 2025 concluded Canada was already in the early stages of recession. The Bank of Canada acknowledged "an excess supply of labour" in their July Monetary Policy Report. Professional, scientific and technical services shed 26,000 jobs in a single month, while transportation and warehousing lost 23,000 positions.

"We're in denial because they're so used to going to the grocery store," explains Glenn Purdy, Founder of Exposure Marketing with 30 years of experience navigating economic cycles. "You're looking at things that are 10, 20, 30, 40, 50% more than they were before. But somehow no one brings it up."

Why Won't Anyone Say Canada Is in a Recession?

Nobody wants to say the word. And there's a reason for that. "Nobody wants to say the word recession because we pucker up," Purdy explains. "The problem is, tell Canadians we're going into a recession and they do start saving money in preparation for the recession. And as a result, they're not spending. And as a result of that, we have a recession."

It's a self-fulfilling prophecy. This psychological phenomenon has been documented in previous Canadian downturns. When authorities officially declare a recession, consumer spending drops sharply, which accelerates the economic decline. The OECD forecasts unemployment rising from 5.4% in 2023 to 7.3% in 2026 , yet official declarations remain cautious.

Canadians have developed a false sense of economic immunity based on the banking system's strength during the 2008-09 financial crisis. "We've had such a good run and a strength that's been going on for so long," Purdy observes, "that we don't go any farther than what we know to be true. We're Canadian. We apologize for saying sorry. And it's that moment where we just want to believe that we've got a stronger economy, that we're smarter."

But the cracks are showing. RBC research indicates Canada's economy hasn't grown in a decade, while productivity has fallen 30% behind the United States. Housing affordability continues declining while many households carry high mortgage debt.

How Are U.S. Tariffs Affecting Canada's Economy?

U.S. tariffs have accelerated Canada's economic slowdown, though the country was already struggling before President Trump's "Liberation Day" trade actions on April 2, 2025. The tariffs apply to exports representing a larger portion of Canadian GDP than in other countries. The entire Canadian economy remains weighed down by uncertainty, with business leaders fearing new measures or undesirable outcomes from free trade agreement revisions.

TD Bank forecasts economic growth downshifting to just 1.2% in 2025 due to high U.S. tariffs hammering demand for Canadian exports. Deloitte Canada expects real GDP to gain 1.3% this year and 1.7% in 2026, avoiding technical recession but representing painfully slow growth.

What Is Happening to Canada's Construction Industry?

"All these construction workers, as these projects get done, where are they going to go?" asks Purdy, pointing to the massive wave of condo construction that began during the pandemic's "fear of missing out" phase.

The answer is troubling. The Canadian Home Builders Association reports nearly one in five builders is extremely concerned about their business survival over the next 12 months. Nearly one-third of builders have already made layoffs.

The oversupply of condos means developers are shifting from presales to rentals in a slowing market, creating ripple effects throughout the economy. Permits pulled during the pandemic's peak are now resulting in vacant units that can't find buyers or renters at expected prices. This creates a cascading effect through related industries including manufacturing, retail, and services.

How Should Business Owners Respond to a Recession?

"As a business owner, you got two options," Purdy explains. "Number one, you can get ahead of this and you can get people compelled to be interested in your product or service, not just because you get a discount, but because they see you, they hear you and they need you, but they also feel value. Or continue doing nothing."

The key difference between businesses that survive recessions and those that don't comes down to visibility and perceived value. "People still spend money in a recession," Purdy notes. "But they only spend it with people who feel real, feel safe, and feel like they're worth it."

Recession-Proof Business Strategies:

• Increase visibility when competitors pull back on marketing
• Focus on perceived value rather than discounting
• Build trust through consistent communication
• Demonstrate expertise and authority in your field
• Show up authentically to connect with cautious consumers
• Shift from FOMO-based offers to value-based positioning

What Can We Learn From Past Canadian Recessions?

Canada's 1990-91 recession offers the closest parallel to current conditions. "The real mechanism, the real connection point right now is probably closer to 1990, 1989, 1990, 91," Purdy notes.

That recession featured similar psychological dynamics where consumer uncertainty stifled spending, which depressed the economy, which justified the original uncertainty. In 1990, Finance Minister Michael Wilson acknowledged Canada was likely in recession after two back-to-back quarters of negative growth. The housing market became "a classic economic paradox" where uncertainty created the very recession everyone feared.

"Out of every recession comes some of the greatest opportunity in the history of every country," Purdy observes. Businesses that maintained visibility and adapted their value propositions during the 1990-91 downturn emerged stronger when recovery eventually arrived. The lesson: those who can see clearly and act decisively position themselves for success while others remain paralyzed by denial.

A Watershed Moment

We'll look back on this year, this season, as the one where everything shifted. Not all at once. Not dramatically. But slowly. Quietly. Persistently.

You're not broke. But you're cautious. You're not panicking, but you're paying attention. The Bank of Canada resumed lowering interest rates in September 2025 to support the faltering economy. Markets are pricing in additional cuts as policymakers acknowledge the severity of the slowdown.

For businesses and individuals, this represents both challenge and opportunity. Denial is comfortable, but it doesn't protect us. It delays us. Right now, the businesses and leaders who can see clearly will move forward while others are still waiting for headlines to catch up.

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Frequently Asked Questions

Is Canada officially in a recession?

Canada has not officially declared a recession as of October 2025, despite unemployment reaching 7.1%  and multiple economic indicators signaling contraction. A technical recession requires two consecutive quarters of negative GDP growth, and official confirmation typically comes months after the fact.

What is Canada's unemployment rate in 2025?

Canada's unemployment rate reached 7.1% in August 2025, the highest level in nine years. The Bank of Canada acknowledged "an excess supply of labour" in their July Monetary Policy Report.

How does the 2025 recession compare to 2008?

The current situation differs from 2008 because Canada's banking system remained strong during the 2008-09 crisis. The 2025 downturn more closely resembles the 1990-91 recession, driven by psychological factors, housing market slowdown, and trade uncertainty rather than financial system collapse.

Are U.S. tariffs causing Canada's recession?

U.S. tariffs have accelerated Canada's slowdown, but the economy was already struggling before President Trump's April 2, 2025 trade actions. TD Bank forecasts growth of just 1.2% in 2025 due to tariffs impacting exports.

Should I stop spending money during a recession?

Excessive caution can worsen recessions by reducing economic activity. Focus on value-based purchasing decisions rather than fear-based hoarding. Businesses that maintain visibility during downturns often capture market share from competitors who pull back.

What industries are most affected by Canada's economic downturn?

Construction faces severe challenges with nearly one-third of builders making layoffs. Professional and technical services lost 26,000 jobs in August, while transportation shed 23,000 positions. Real estate has seen agents walking away from six-figure deposits.

Will Canada avoid a technical recession?

Deloitte Canada expects real GDP to gain 1.3% in 2025 and 1.7% in 2026, technically avoiding recession but representing painfully slow growth. However, many economists argue the psychological recession has already arrived.

How long will Canada's economic slowdown last?

Economic forecasts extend through 2026, with the OECD predicting unemployment rising to 7.3% by 2026. Recovery timing depends on trade negotiations, interest rate policy, and consumer confidence restoration.