Canada's economic growth stalled in November as growth in services was offset by weakness in goods-producing industries, data showed on Friday, offering fresh clues on the state of the economy after almost a year of tariff and uncertainty. (Reuters)
Canada’s economy is showing mounting signs of strain and is now firmly on recession watch, according to a new report from Rosenberg Research that warns recent interest-rate cuts have failed to revive growth.
Despite aggressive monetary easing by the Bank of Canada, key sectors remain weak, per capita GDP continues to decline, and overall economic momentum is fading heading into 2026.
Economy Stuck Near Stall Speed
The report, titled Canadian Economy on Life Support, finds that Canada’s economy is growing at just one per cent annually, even after the central bank lowered rates by 275 basis points from a peak of five per cent in 2024.
David Rosenberg, founder of Rosenberg Research, said the lack of response raises concerns about the effectiveness of monetary policy.
“What we’re seeing is the grand total of a one per cent growth economy after significant rate cuts,” Rosenberg said in an interview with BNN Bloomberg. “The real question is whether that’s all the stimulus delivers.”
Recession Watch Intensifies
Rosenberg Research expects Canada’s economy to contract by an annualized 0.5 per cent in the fourth quarter, underperforming the Bank of Canada’s forecast of flat growth.
Because economic output has now declined in two of the past three quarters, the report says Canada is officially on recession watch for 2026 — a designation that signals elevated risk rather than a confirmed downturn.
Housing and Manufacturing Fail to Respond
Two of the most rate-sensitive sectors — housing and manufacturing — remain under pressure.
National home prices are down roughly two per cent year over year, while residential construction spending has shown little movement. Manufacturing output has declined by five per cent, despite a competitive Canadian dollar and strong U.S. demand.
“Residential construction is flat as a beaver tail,” Rosenberg said, noting that expectations of renewed housing inflation following rate cuts have not materialized.
Inflation No Longer the Constraint
Inflation is no longer a major barrier to further policy easing, Rosenberg argues. Most underlying inflation measures are within the Bank of Canada’s target range, and the central bank itself expects a disinflationary output gap to persist until at least 2027.
“Inflation in this country is not really an issue,” Rosenberg said, adding that economic growth remains below potential.
Canadian Dollar Under Pressure
With growth-sensitive sectors failing to rebound, Rosenberg expects further weakness in the Canadian dollar.
He said currency comparisons should focus on commodity-linked peers such as Australia and New Zealand. Against those currencies, the Canadian dollar has already fallen more than four per cent in recent months — a sign of weaker domestic demand.
“If interest rates were truly doing their job, we’d see stronger momentum in housing, construction and retail,” Rosenberg said. “That’s not happening.”
Trade Uncertainty Adds to Headwinds
Manufacturing weakness has persisted despite strong U.S. economic growth, underscoring structural challenges rather than cyclical ones. Rosenberg said hopes for improved Canada-U.S. trade dynamics have faded amid rising geopolitical uncertainty.
Ultimately, the report concludes that while the Bank of Canada has acted decisively, further easing may be required to prevent a deeper slowdown.
“As much as the Bank has done,” Rosenberg said, “they haven’t done enough — at least not yet.”
