Canadian economy in a death spiral
Executive summary
The Canadian economy is struggling with several structural and cyclical headwinds — trade uncertainty, weaker population growth, and depressed export demand — but the evidence in mainstream forecasts and reporting does not show a country in a "death spiral"; instead it shows below‑trend growth and meaningful downside risks that could deepen a slowdown if policy or trade shocks worsen [1] [2] [3].
1. Growth has slowed, not collapsed
Across private and public forecasts, Canada is expected to register only modest growth in 2026 — often in the ~1%–1.5% range — after avoiding a technical recession in 2025, which means output has decelerated rather than imploded [4] [5] [2]. Multiple forecasters flag that real GDP growth fell from stronger rates in 2024 to under 1% in parts of 2025, and that Q4 weakness may carry into 2026 [6] [7] [3].
2. Trade policy is the single largest acute risk
A new wave of U.S. tariffs and the looming CUSMA/USMCA review are repeatedly identified as a "significant risk" to the outlook; analysts warn that sustained tariffs or a breakdown in the agreement would bite into exports, business investment and confidence, keeping growth depressed until trade clarity returns [8] [7] [2].
3. Domestic weaknesses amplify vulnerability
Household consumption — about 60% of GDP — is a central vulnerability: weak population growth, a tighter labour market in places, and very high household debt burdens mean consumer spending could falter, especially as many mortgages reset at higher rates in 2026 and debt servicing already consumes a large share of disposable income [7] [4] [1]. Forecasters therefore expect domestic demand to be only a partial offset to export weakness [4] [5].
4. Notable signs of resilience and reasons for cautious optimism
Contrary to the "death spiral" framing, reporting shows Canada avoided two consecutive quarters of negative GDP in 2025, added jobs over the year, and saw some household balance‑sheet improvement — outcomes firms like RBC and BMO point to when arguing the economy is stabilizing rather than collapsing [9] [10]. Several forecasters also model scenarios where tariffs are eased or exemptions restored in 2026, which would materially improve trade flows and support a recovery in the back half of the year [2] [3].
5. Policy choices and regional differences will shape the trajectory
Economists highlight that monetary policy has less room to help quickly and that fiscal choices — provincial and federal — will influence how long weak growth persists [11] [2]. The country is also described as fragmented: some regions are hit hard by trade shocks while others remain insulated, meaning national averages mask sharper local pain [9] [12].
6. Where the "death spiral" claim fails and what could make it true
The "death spiral" narrative implies sustained, accelerating decline across output, employment and living standards; current evidence shows slowing and meaningful downside risks but not systemic collapse — forecasts largely expect low but positive growth, not general economic implosion [4] [1]. That said, a severe escalation of tariffs, an abrupt collapse of CUSMA, or a simultaneous tightening in credit conditions could push the economy into a much deeper downturn — scenarios that forecasters explicitly treat as downside tail risks [8] [7].
7. Read the signals, not the headlines
Reporting from think tanks and private forecasters offers competing emphases — some stress resilience and policy buffers [9] [10], others warn of "dark clouds" and structural transition [13] [6] — so the accurate takeaway is conditional: Canada is not in a death spiral now, but it faces concentrated shocks that could create a prolonged period of subpar growth unless trade disputes and demographic headwinds are addressed [8] [1].