MNI INTERVIEW: Canada Nowhere Near Recession- Ex BOC Adviser

Canada hasn't dipped into recession though recent weakness reduces odds the central bank will raise interest rates to curb inflation, a member of a group that dates economic cycles who is also a former Bank of Canada adviser told MNI. 

“We’ve got a small decline in the fourth quarter of 2025, basically no change in the first quarter of 2026, but monthly GDP makes it look like it’s going to look like an increase in April, so I don’t think you can even call it a close call,” said Steve Ambler, retired Universite du Quebec a Montreal professor and a member of CD Howe's business cycle council, in an interview. ]

StatCan's report of a 0.1% annualized contraction was in fact 0.0 on a quarter-over-quarter basis, and even small headline declines shown in the report are “smaller than most rounding errors,” Ambler said. Canada's stats office revises quarterly figures over the next several reports. 

Falling business investment and high youth unemployment point to difficult times but even the economist phrase "technical recession" used by opposition parties since Friday's GDP report is misleading, Ambler said. The word technical implies economists use it as a precise term when it has little formal roots in the profession, he said. (See: MNI INTERVIEW: BOC Holds With Broader US Tariff-Senator Gignac)

First-quarter GDP was far short of the Bank's estimate for growth of 1.5%, which "has lowered the probability of any interest-rate increase," Ambler said. The need to hold down inflation expectations linked to the Iran conflict means a rate hike remains in play, he said.

SIX UNCLEAR MONTHS

Governor Tiff Macklem said earlier this year a weak economy meant that without the oil-price jump officials would be looking at a rate cut. U.S. tariffs are dragging on investment and exports and Donald Trump abandoning free trade with Canada or imposing new tariffs would impose a broad hit to the economy, Ambler said.

The range of Bank policy outcomes this year remains wide, Ambler said. "There's a lot of uncertainty surrounding the Bank's own estimates of how much slack there is in the economy, because demand doesn't look strong but supply doesn't look strong either," he said.

Food prices could also rise if a prolonged Iran conflict disrupts fertilizer supplies and add to higher inflation expectations beyond energy, Ambler said. 

"They have to be very good in their communication to hold that off at the pass, try and prevent it from embedding itself in inflation expectations, in which case they would have to react probably by increasing rates," he said.

There's no reason to move the 2.25% policy rate at the June 10 meeting, Ambler said. "The Bank won't change next time, but six months down the road it could go up or it could go down, depending."