Prime Minister Mark Carney has promised to reboot Canada’s economy, building it into the “strongest in the G7”. It is a bold ambition, one that he has repeated on foreign soil, in domestic speeches, and in private conversations with business leaders across the globe. He has spent weeks travelling overseas in the last year—visiting European capitals, Asian financial hubs, and even making a notable stop in London—seeking to drum up business interest in Canada as an investment destination of choice.
But there is no doubt the country’s economy is struggling. From punishing tariffs on certain industries to younger Canadians finding it nearly impossible to secure stable work or afford a home, the pain is being felt unevenly across the country. Some Canadians are weathering the storm with relative ease, while others are being pushed to the brink. Five charts help illustrate the state of Canada’s economy—and how it’s performing compared to other wealthy nations.
1. Technical recession — but it could be worse
Economic growth in Canada this year is forecast to be 1.6%, according to the International Monetary Fund (IMF). That places the country behind the United States—which continues to defy expectations with its resilient growth—but ahead of its European G7 partners, including Germany, France, and Italy, all of which are grappling with their own structural challenges.
As the country’s economy slowly recovers from the slowdown triggered by US tariffs, the Organisation of Economic Co-operation and Development (OECD), an influential global policy group, projects a modest improvement in gross domestic product (GDP)—growth of 1.7%—in 2027. It is a modest rebound, but economists caution that it is far from guaranteed, given the volatile geopolitical landscape.
Earlier this month, data from Statistics Canada delivered a sobering blow: the country had slipped into a technical recession—defined as two consecutive quarters of GDP decline—in late 2025 and early 2026. The contraction was small, barely registering in the broader scheme of economic indicators, but the symbolism was significant. For a country that prides itself on stability and resilience, the word “recession” carries heavy political and psychological weight.
The government, however, has sought to downplay the alarm.
“The government is responding in real time to shifting global economic volatility and broad-based supply chain disruption with a serious plan to grow exports, create jobs and invest in productivity forward projects,” said John Fragos, a spokesman for Finance Minister François-Philippe Champagne. The message was clear: Ottawa is not sitting idle, and it has a strategy to steer the country through turbulent waters.
Economists, meanwhile, have cautioned against panic, arguing that the country is likely to avoid a prolonged downturn, especially given the small decline recorded. The contraction, they note, is more of a warning sign than a catastrophe.
“Whether one chooses to divine the fact that we’re in a recession or not really does miss the point,” said Jeremy Kronick, president of the CD Howe Institute, a non-partisan economic think tank. “I mean, the economy is weak, right?”
His point is simple: the label matters less than the underlying reality. Canada’s economy is sluggish, its productivity growth has been anemic for years, and the headwinds are only getting stronger. Whether it is officially a recession or not, the feeling on the ground is one of stagnation and uncertainty.
2. Rising inflation and pocket book pain
For many Canadians, the cost of living is a major and growing worry. It is not just a political talking point—it is a daily reality that shapes household budgets, spending decisions, and even life choices.
Some 61% of respondents told the non-profit Angus Reid Institute research firm in a recent poll that inflation was their top concern, ahead of housing affordability, crime, and even the threat of US tariffs. That finding underscores just how deeply the rising cost of everyday goods has penetrated the national consciousness.
Inflation in May was 3.2%, up from 2.8% in April, driven largely by higher energy prices—notably gasoline prices, which have spiked due to the fallout from the war in Iran. Global oil markets have been volatile, and Canadian drivers have felt the impact at the pump, adding to the squeeze on household budgets.
Still, the current rate is down significantly from the post-pandemic highs of 7% or 8% recorded in the summer of 2022, when supply chain disruptions and pent-up demand sent prices soaring. The decline offers some relief, but for many Canadians, prices remain stubbornly high compared to pre-pandemic levels.
It is a pattern repeated across most other wealthy nations, with Canada’s inflation rate similar to those in major European economies but still lower than in the United States. The US Federal Reserve has struggled to bring inflation under control, and American consumers continue to face elevated prices in key sectors such as housing, healthcare, and food.
“It is clear that inflation does cause hurt for a range of people, and that the majority of us see that inflation as we go to a grocery store, we see our energy prices inflate,” said Paul Kershaw, founder of the generational fairness advocacy group Generation Squeeze, and a professor at the University of British Columbia. His words capture the lived experience of millions of Canadians who find themselves paying more for less, every time they shop.
The political implications are significant. Voters who feel economically squeezed tend to punish incumbents, and Carney’s Liberals are acutely aware of the threat. The government has rolled out targeted measures to ease the burden, including a one-time grocery benefits payment, but critics argue that such measures are temporary fixes rather than systemic solutions.
3. More equity for some, higher debt for others
Kershaw, who has spent years studying generational inequality, calls rising housing costs a “third kind of inflation”—one that has led to a boom in equity for current homeowners but has left many, mostly younger people, locked out of the market entirely.
The numbers are stark. Canadian households now carry the largest debt burden among G7 nations. Much of it is driven by mortgage debt, which analysts argue helps increase net worth, while the rest is consumer credit and other loans. For those who own property, rising home values have translated into substantial paper gains. But for those who rent or are trying to buy their first home, the dream of homeownership feels increasingly out of reach.
He said there are “Canadians who are doing just fine, who’ve actually probably gained wealth over some of these harder years… and who are managing the frustrations that come with higher food costs and higher energy costs.” This divide—between those who have benefited from asset inflation and those who have not—is one of the defining features of Canada’s current economic landscape.
The recent Angus Reid survey indicates that seven-in-10 Canadians describe their current household finances as “good” or “very good”, while the 27% who say they are in poor financial shape are also more pessimistic overall about their financial future. That minority, however, is growing, and their anxiety is increasingly shaping the national mood.
A separate survey from the firm suggests more than a third of Canadians say the financial aspect of their current living situation is tough or very difficult. That figure rises to 45% among renters—a group that is disproportionately young and urban. People who have secured a home and a mortgage but whose households make less than C$100,000 (£53,400) are also under significant financial pressure, caught between rising interest rates and stagnant wages.
The housing crisis is not just an economic issue—it is a generational one. Younger Canadians who entered the workforce during or after the pandemic face a triple burden: high housing costs, elevated student debt, and a competitive labour market that has not kept pace with inflation. For many, the prospect of owning a home seems like a distant fantasy.
4. Many younger Canadians are struggling — and the future is uncertain
Canada’s unemployment stood at 6.6% in May, a figure that masks significant disparities across regions and age groups. While the national rate is relatively modest by historical standards, the youth unemployment rate tells a very different story.
Youth unemployment is at 13.4%—the first decline since January but still stubbornly higher than pre-pandemic averages of about 10%. That means more than one in eight young Canadians who are actively seeking work cannot find it. For those who do find jobs, many are in precarious, part-time, or low-wage positions that offer little in the way of stability or upward mobility.
Kershaw from Generation Squeeze said: “We are at a moment where the economy disproportionately isn’t working for younger people, and some newcomers of any age.” His observation cuts to the heart of the matter: the Canadian economy, once a model of intergenerational mobility, is increasingly failing its youngest citizens.
He argues that Carney’s plans to make the economy more productive and resilient—which come with significant investments in infrastructure projects and defence spending—won’t help the many Canadians just trying to make ends meet now. Large-scale projects take years to materialise, and for a young person struggling to pay rent or put food on the table, promises of future prosperity ring hollow.
Carney has acknowledged affordability challenges, most recently offering a one-time grocery benefits payment to eligible Canadians. The move was widely seen as a stopgap measure, designed to provide immediate relief without addressing the deeper structural issues driving economic inequality.
But the prime minister has repeatedly urged patience, arguing that his government’s long-term strategy will eventually bear fruit.
“This government’s been in the process of laying the foundations for a stronger, more resilient, more independent Canadian economy,” Carney said earlier this month. His tone was measured, almost paternal, as if asking Canadians to trust the process.
“That process is settling in during that time as the major investments, major changes to how the government operates, how we do major projects, how we have new trade agreements with other countries.”
His Liberal government has ambitious plans: to double Canada’s non-US exports over the next decade by expanding trade relationships across Europe and Asia, to fast track major infrastructure projects, and to reduce internal trade barriers that have long hampered productivity. It is a vision of a more self-reliant Canada, one less dependent on the whims of its southern neighbour.
But time is not on his side. Dave McKay, CEO of the Royal Bank of Canada, the country’s largest bank, cautioned during a talk hosted by Bloomberg earlier this month that the clock is ticking.
“We have to see tangible progress on a couple of these big ideas,” he said. “The capital is impatient, and it will move where it thinks they can get the most sure and fastest return.” His warning reflects a growing unease among business leaders, who fear that Canada’s slow pace of reform is costing it investment and competitiveness.
Kronick, of the CD Howe Institute, said uncertainty with Canada’s largest trading partner, the US, is another headwind. The relationship with Washington has been fraught for over a year, and the unpredictability of US trade policy has made long-term planning nearly impossible for Canadian businesses.
5. Canada still depends on US trade — and Trump
For James White, the US-Canada trade war has had a major impact on his family-owned company, Wellmaster. The Ontario-based firm manufactures products for drillers, and White, the firm’s president and CEO, said 60% of its profitability is reliant on access to the US market.
But since the tit-for-tat tariffs began last year between the two trading partners, sales are down by 20%. His business has been affected by US levies on steel derivatives—and Canada’s similar retaliatory tariffs. The double blow has squeezed his margins and forced him to delay investments in new equipment and staff.
“I’m being pulled down in my ability to make investments in my people and my technology and my equipment. That’s not happening with my competitors,” he said. His frustration is palpable, and it is shared by business owners across the country who find themselves caught in the crossfire of a trade war they never asked for.
US tariffs hit Canada slightly differently compared with other nations, as the country shares a border with the largest economy in the world. More than 70% of Canadian exports head to the US, and the economies are deeply integrated—across supply chains, manufacturing, agriculture, and services.
While the majority of products are exempt from US tariffs under the current free trade agreement between the US, Canada and Mexico—the USMCA—the White House has imposed tariffs on specific sectors, including 15% to 50% tariffs on steel, aluminum, and copper—the ones proving challenging to White—and 25% tariffs on vehicles.
“What’s key is just that there are these different parts of the economy or the country that are affected differently,” said Kronick from the economic think tank.
“We’ve seen big changes in [auto hubs] Brampton and Windsor and changes where steel, aluminum, and autos are all impacted. I think they’re experiencing it far more acutely than, perhaps, people in downtown Toronto.”
Ottawa is negotiating with the US both to reduce these sectoral tariffs and on a review of the USMCA but have yet to reach a deal. Businesses in Canada just want certainty—the ability to plan, invest, and hire without fear of sudden policy shifts.
Conclusion: So, how is Canada positioned for the future?
Kronick said Canada’s economy has some structural issues feeding the stagnation, such as trade barriers between provinces—things like different trucking requirements, or professional licensing—and a tax system he calls “uncompetitive.” These internal friction points have long been a drag on productivity, and successive governments have struggled to address them.
But there are some fundamental strengths too.
“If you were drawing up a country from scratch, a well-educated, well-resourced, not overpopulated country would be what you would want, right? So, I think Canada has all those things, all those features,” he said.
Canada boasts a highly educated workforce, abundant natural resources, political stability, and a reputation for openness that attracts immigrants from around the world. These are not minor advantages, and they provide a solid foundation for future growth.
Yet the gap between potential and reality remains wide. Canada’s productivity has lagged behind its peers for decades, and the current economic headwinds—tariffs, inflation, housing unaffordability, and generational inequality—threaten to widen that gap further.
For Carney, the challenge is clear: deliver tangible results before the patience of Canadians—and of global investors—wears thin. His vision of a stronger, more resilient Canada is ambitious, but ambition alone will not pay the bills or put food on the table. The clock is ticking, and the stakes could not be higher.
