Canada’s unemployment will go past 7% this year — but no recession: OECD – National

The Canadian economy may narrowly avoid a recession this year, but the outlook for growth and the job market is still expected to take a hit from the trade war, according to the latest report from the Organization for Economic Co-operation and Development.

In its Canada economic survey, the OECD outlines key areas that are already slowing or forecast to decline this year, including per capita GDP, housing affordability, adapting to climate change and business sector productivity.

The organization cites the U.S. trade war and tariff impacts as one of the main headwinds for Canada’s economy, and provides recommendations for the best ways to counteract those challenges.

The report says the trade war is expected to weigh on Canada’s overall GDP — a measure of the total value of all goods and services produced within Canada on a monthly and quarterly, or three-month, basis.

The OECD adds in its study that boosting business development within the country can help offset some of the negative impacts.

On the labour front, the OECD forecasts that unemployment will rise this year to 7.1 per cent, and in 2026 to 7.3 per cent as the trade war and tariffs are expected to continue leading to more job losses in Canada.

The most recent employment report from Statistics Canada showed unemployment increased in April to 6.9 per cent compared with 2024, and that’s up from 6.7 per cent in the March report.

The OECD says Canada will see economic growth in 2025 of one per cent, with a contraction, or negative growth, in the second quarter and flat, or zero per cent, growth for the third and fourth quarters.

Most economists define a technical recession as two consecutive quarters where there was an economic contraction.

This forecast suggests Canada may manage to avoid a recession by a fraction of a per cent, compared with economists at TD Bank Group saying they expect to see negative growth in the second and third quarters of this year but also noting the “severity” will depend on future action by the federal government.

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One of the ways the OECD recommends to increase productivity is by removing interprovincial trade barriers, which will also help capitalize on larger markets other than the United States.

This is something Prime Minister Mark Carney addressed during his campaign as part of the Liberals’ One Canadian Economy initiative, and by appointing Dominic LeBlanc to lead the negotiations with provinces.

“If these tariffs prompt addressing long-standing structural issues, such as strengthening internal markets in Canada, this could have lasting positive offsets,” the report says.

Per capita GDP is a measure of a country’s total economic output divided by its population to reveal how much each Canadian shares in the total output. The report shows that although Canada emerged well from the pandemic in this regard, it still lags behind its peers, especially the United States.

The report says one of the reasons for a lack of per capita GDP growth may have been the rate of population growth in recent years.

“High population growth after the pandemic has boosted labour supply but was not met with similar productivity-enhancing investment,” the report says.

“Lower per capita GDP growth also reflects lower productivity of recent immigrants, comprising many low-skilled non-permanent residents.”

The next report on Canada’s GDP will be released on May 30, and feature data for the month of March, as well as the first quarter overall.