Canada economy on recession watch, economist warns

Canada's economic concerns are growing after a new report suggested the country could be heading toward a recession if growth does not improve.

In an interview with BNN Bloomberg, Rosenberg Research chief economist David Rosenberg said the national outlook remains weak despite earlier interest rate cuts.

His firm’s report, titled Canadian Economy on Life Support, says per capita GDP continues to decline while overall growth sits at about one per cent annually.

“It’s clear to me, unless the policy lags are just a lot longer this time around, that this is what 275 basis points of bank Canada rate cuts delivers: the grand total of one per cent growth economy,” Rosenberg told BNN Bloomberg, adding: “The next question is, is that all you get?”

The report forecasts the economy will shrink by an annualized 0.5 per cent in the fourth quarter, below the Bank of Canada’s projection of zero growth.

Manufacturing output has dropped about five per cent, while home prices are down two per cent year over year.

Because the economy has contracted in two of the last three quarters, Rosenberg said Canada is now on a “recession watch” for 2026.

He also argued inflation is no longer the main concern: “Inflation in this country is not really an issue. Virtually every underlying inflation measure is comforted within the Bank of Canada’s comfort zone,” he said.

Rosenberg believes further interest rate cuts may be needed and warned the Canadian dollar could face downward pressure.

He also noted housing has not rebounded as expected: “If you look over the past year, residential construction expenditures are flat as a beaver tail,” Rosenberg said.

“None of that has happened. In fact, home prices in Canada nationwide have either been flat or negative sequentially for 10 months in a row, and are running negative two per cent year-over-year.”