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Once there have been two consecutive quarters of negative growth in Gross Domestic Product, a recession will be declared based on the formal definition. Whether or not Canada will go into a Recession in 2026 is, however, still up for debate. Only some major economists, like the International Monetary Fund, believe that this will be the case for the Canadian economy.
How Likely a Recession is in 2026
With Trump’s tariffs from the trade war in Canada, the major jump in housing prices and the high consumer rates after the massive inflation we had a few years ago, it’s very likely that we will reach a recession in 2026, due to economic decline. However, there are some economists who still believe that this economic downturn is avoidable.
One of the largest factors in whether or not we end up in a recession is Trump’s tariffs. This will impact global demand and trade, which can negatively affect trade. If trade is affected, then so is our economy, since we heavily rely on trade to run smoothly. It will also result in lower consumer spending and even have an effect on market volatility as well as the labour market.
Currently, the lack of economic co-operation in the past year, as well as high inflation, has seen many Canadian households seeking to plan ahead for the early stages of the recession in this economy. Even with the consumer carbon tax being a thing Canadians stop paying for, and monetary policy reducing inflation, a lot of the damage has already been done.
Even though we avoided a recession in the first quarter, as well as second quarter, of 2025, fluctuations in other markets and tariff uncertainty could mark significant shocks to the third and fourth quarters. For those who invest in the stock market, you could be affected based on the asset classes that you invest in.
The Safest Place to Put Your Money During a Recession
While many people pull their money out when a recession is looming, many experts say this isn’t a good idea. While your growth will decrease for a period of time, historically, economies always come back pretty strong after a recession. If you pull your investments too early, you could be missing out on some great growth.
That said, during a recession, the value of your money and your assets will decrease. One of the reasons that many experts believe we are going into a recession is because asset value hit such an astronomical high, that it has no where to go but down. While it has started decreasing, the state of the economy will decide if it becomes a recession or not.
If you’re extremely concerned, another option is to put your funds in low-risk investments. While nothing is guaranteed, you shouldn’t have any issues with your principal investments. That said, you may not get the best return on your investment. Whether you decide to leave your investments or move them, it’s important to remember that investing isn’t a get-rich-quick scheme. The best way to make money is to play the long game.
If you invest in the stock market, though, there is a risk of companies going under during a recession. Before making a rash decision, though, it’s a good idea to speak to a financial advisor. They can help you take a look at your investments and move around whatever is needed.
The Outlook for Canadian Banks in 2026
While a recession can be hard for banks in the US and other countries, Canadian Banks and financial institutions are relatively safe. This is because Canadian Banks are federally regulated, and many of them have strong capital and portfolio management that can withstand a recession. It can even make banking more beneficial for some customers.
On top of that, in a worst-case scenario situation, Canadian banks are insured by the Canada Deposit Insurance Corporation. This covers many accounts up to $100,000. It’s your riskier investments that may not be covered. However, you are able to move those if you choose.
Historically, very few Canadian banks have gone under, especially in a recession. The larger the bank, the less likely it is to happen as well. That said, banking in Canada is relatively safe, and losing our money in a recession is a very small risk.
The Last Recession in Canada
In recent history we have actually had two recessions. The most recent was in 2020 throughout the COVID-19 pandemic. That said, though, that recession was really small but it hit a lot of people hard. In fact, it only lasted a few months. Before that, the last recession was is 2008 and 2009.
The 2008 and 2009 recession was only seven months long and was caused by a global financial crisis that originated in the United States. While this recession was severe in other countries, it was considered to be relatively minor in Canada. However, this was still referred to as the Great Recession.
Other Canadian Recessions
Another fact about recessions that you might be surprised to learn is that there have been 12 recessions in Canada since 1929, including the two we mentioned above. In 1929, the Great Depression caused a recession, and it lasted until 1933. Since then, other recessions haven’t lasted more than 2 years.
Another recession that was considered to last a long time was the 90’s recession. This recession lasted from 1990 until 1992. During this time, the Bank of Canada raised interest rates between 5% and 6% and unemployment rose to almost 12%. Even though it ended in 1992, it took some time for the economy to recover.
Are We Currently in a Recession?
No, we aren’t currently in a recession. However, that doesn’t mean that one isn’t looming. The only reason we aren’t currently in a recession is that we haven’t had two consecutive quarters of negative GDP growth. That said, that doesn’t mean that we won’t be by the second and third quarters of 2025.
When it comes to recessions, the manufacturing sector is the most susceptible, and a rising unemployment rate can cause the industry to experience problems. These issues can impact corporate profits from declining GDP and daily spending habits. This business cycle is anticipated due to trade tensions, but with no timeline.
How to Protect Yourself From a Recession
While going into a recession can be scary, there are plenty of things that you can do in order to protect yourself. However, it’s important to remember that a recession a normal part of an economy and they will come and go.
A few things that you can do to protect yourself include:
- Paying off high-interest debt
- Building an emergency fund
- Revisiting your budget
- Diversifying your investments
- Protecting your credit score
- Consolidating your debt
Ultimately, what you want to do in the event of a recession is increase your income and decrease your spending, just in case. While many won’t feel the full effects of the recession, some will. That’s why it’s better to be prepared. Many say you should also attempt to pay off your mortgage, since fairly high mortgage debt can be difficult in a recession. It’s best to avoid failryl high household debt amounts in you can.
That said, another important part of preparing yourself for a recession is not to panic. In fact, panicking is the worst thing you can do. Experts say not to make any decisions based on emotions, because that’s when problems can start. If you aren’t sure what to do, the best thing is to contact a financial advisor and get their advice.
Who is Affected Most in a Recession?
While recessions are usually only a temporary period of time, there’s a lot that can happen in the same period. During a recession, those who are affected most include those with minimum wage jobs, those who work in retail and those who work in manufacturing. This is because of job losses and reduced working hours. Even though the national bank uses fiscal policy and fiscal anchors to help correct this, many businesses in these industries still end up on a declining path since Canada’s GDP will fall.
That said, those with an average income can still be negatively affected by a recession. They may not be affected by consumer confidence falling, but housing unaffordability can still become an issue, even for mortgage holders. Many households will also face higher unemployment rates, even as trade tensions subside. For some, this could greatly affect healthcare coverage and their overall well being.
Final Thoughts
Recessions are a regular part of economic history; however, they’re not a fun thing to go through. If you aren’t prepared, they can have long-term effects on your financial and emotional well-being, and can take a long time to recover from. The best thing that you can do in the event of a recession is to be prepared, because there’s nothing that you can do to stop it.
With the current economic uncertainty, it’s wouldn’t be surprising if we were in a recession by the end of 2025. That said, some experts believe that we can still avoid it. All we can really do in the meantime is pay attention to what’s happening around us and prepare ourselves in the event that there is a recession.
