Bank of Canada Governor Tiff Macklem described Canada’s economy as weak but stopped short of calling it clearly in recession after the central bank held its policy interest rate at 2.25 per cent.
The decision marked another hold for the Bank of Canada after its last rate cut in October 2025. It came against a backdrop of sluggish output, debate over whether Canada has entered a technical recession, and renewed uncertainty from U.S. trade policy and higher oil prices tied to conflict in the Middle East.
Macklem’s central point was narrow but important: recent data show weakness, not the kind of broad, deep decline that would make the recession label straightforward.
“Recession” is not the word he said he would use. Instead, he pointed to an economy that has done little growing over the past year, with excess supply and slack in the labour market, but without a clear economy-wide contraction.
Why Macklem Is Avoiding the Recession Label
Economists often use two consecutive quarters of negative gross domestic product as a shorthand for a technical recession. Recent Canadian GDP data have made that debate harder to avoid, with output contracting in back-to-back quarters and the first quarter of 2026 coming in slightly negative on an annualized basis.
Macklem acknowledged that the numbers show weakness. But he argued that the picture is not broad enough to be treated as a clear recession. His reasoning was that GDP has been roughly flat over the past year rather than sharply lower, while employment has not shown the kind of sustained collapse that usually accompanies a more obvious downturn.
The distinction matters because a technical recession and a full business-cycle recession are not always the same thing. A technical recession focuses heavily on the GDP sequence. A broader recession call usually looks at the depth, duration and spread of the decline across industries, jobs, income and spending.
Macklem said that, once the volatility in the data is smoothed out, the economy has neither grown much nor shrunk much over the past year. That is a weak result, but in his view it does not yet show a significant broad-based decline in activity.
He also noted that parts of the economy continued to expand in the first quarter. That does not erase the weak headline GDP figure, but it supports the Bank of Canada’s view that the slowdown has not spread evenly across the economy.
The Rate Hold Reflects Competing Risks
The Bank of Canada’s decision to keep the policy rate at 2.25 per cent reflects a difficult mix of pressures. Lowering rates could help support demand in a weak economy. Raising rates, or keeping them restrictive for longer, could help guard against inflation if energy costs or trade disruptions feed into broader prices.
For now, the central bank chose to wait.
Macklem framed the decision as a balance between economic weakness and inflation risk. The economy has spare capacity, which tends to reduce companies’ ability to pass along price increases. At the same time, higher oil prices and uncertainty around U.S. trade policy create risks that inflation could prove more persistent than expected.
The Bank of Canada’s job is not simply to react to weak GDP. It is also trying to keep inflation close to its two per cent target. That leaves policymakers in a more cautious position than they would be in if growth were weak and inflation risks were fading at the same time.
Energy Prices and U.S. Tariffs Remain Major Concerns
Macklem pointed to two external risks that are complicating the outlook: the conflict in the Middle East and uncertainty over U.S. tariff policy.
Higher oil prices can quickly show up in gasoline and transportation costs. The more serious concern for the Bank of Canada is whether those increases spread into other consumer prices and affect inflation expectations. Macklem said there had been limited evidence so far of broad pass-through from higher energy prices into the wider price basket.
Food inflation remains another pressure point for households, though Macklem said it has moderated. For families already dealing with high borrowing costs and years of elevated living expenses, even slower inflation does not necessarily feel like relief. Prices can still be rising, just at a slower pace.
U.S. trade policy is another source of uncertainty. Tariffs can weigh on Canadian exporters, disrupt supply chains and make business investment decisions harder. For the Bank of Canada, that uncertainty matters because it can weaken growth while also raising some costs, a combination that makes interest-rate decisions less straightforward.
What the GDP Numbers Do and Do Not Show
The recent GDP figures have put the word recession back into the public conversation. But Macklem’s comments suggest the Bank of Canada is looking for more than a simple two-quarter rule before treating the downturn as a clear recession.
A useful way to read the current situation is that Canada’s economy is stalled. Output has been soft. Growth has been hard to find. The labour market has slack. But the data have not yet shown the kind of widespread, synchronized decline that would make the recession call less debatable.
That distinction can sound technical, but it affects policy. If the Bank of Canada saw a broad and deep downturn with inflation under control, the case for rate cuts would be stronger. If it saw inflation pressures spreading, the case for keeping rates steady or even tightening would become more serious. The present picture sits between those outcomes.
How This Affects Borrowers and Households
For households, the immediate result is simple: the Bank of Canada’s benchmark rate remains unchanged. Variable-rate borrowers, people with lines of credit and those watching mortgage renewal costs did not get relief from this decision.
The broader message is more cautious. The Bank of Canada is not saying the economy is healthy. It is saying the weakness has not yet developed into a clear, broad-based recession. That leaves borrowers and businesses facing an economy that is soft but still uncertain enough to keep the central bank from moving quickly.
The language also signals that the Bank of Canada is keeping its options open. If weakness deepens and inflation risks ease, rate cuts could become easier to justify. If energy prices stay elevated or tariffs push costs higher, the central bank may be more reluctant to loosen policy.
The Bottom Line
Macklem’s message was not optimistic, but it was measured. Canada’s economy is weak, growth has been nearly flat, and the labour market has slack. At the same time, the Bank of Canada does not see enough evidence of a broad, deep decline to call the economy clearly in recession.
That leaves the central bank in a holding pattern. Rates are steady at 2.25 per cent, inflation risks remain under watch, and policymakers are waiting for clearer evidence on whether Canada’s economy is merely stalled or sliding into something more severe.