Royal Bank of Canada economist Claire Fan says recent contractions in Canada’s GDP do not amount to a recession, a view also held by the C.D. Howe Institute Business Cycle Council, which dates Canadian recessions. The assessment rests on the idea that volatile population dynamics can skew traditional GDP readings, prompting greater emphasis on per-capita GDP as a measure of household-level conditions.
Fan points to sharp swings in population growth, adding that the past two quarters of GDP decline coincided with population declines, described as the first on record since the 1950s. With that relationship now reversed, she says headline GDP may be understating underlying conditions, while per-capita trends indicate an early-stage recovery after a soft patch that began in early 2023. The article was produced with an Artificial Intelligence tool and reviewed by an editor.
Economic Recovery Signs And Policy Impacts
We believe the Canadian economy is in an early-stage recovery, despite what some headline GDP numbers suggest. The sharp swings in population growth have distorted the real picture for households. Looking at per-capita trends, the soft patch that began in 2025 appears to be ending.
This view is supported by the latest jobs report from June 5, 2026, which showed a gain of 45,000 jobs, handily beating expectations. The Bank of Canada also held its interest rate at 4.25% last week, noting “emerging signs of resilience” in the economy. This suggests the central bank is less likely to cut rates in the coming months, which markets had been anticipating.
Market Implications And Investment Strategies
For derivative traders, this means expectations for near-term rate cuts may be mispriced. We are positioning for a flatter or even upward-sloping yield curve by looking at derivatives like CORRA swaps that price in fewer rate cuts through the end of 2026. Historically, when the Bank of Canada pivots from a dovish to a neutral stance, bond futures tend to underperform.
We also see upside for the Canadian dollar, as the economic narrative shifts from recessionary fears to one of stable recovery. Implied volatility on CAD/USD options has been elevated, so selling puts or structuring bullish call spreads could be effective ways to gain long exposure. The currency, currently trading near 0.7450 USD, has yet to fully price in this stronger domestic outlook.
This outlook is also constructive for Canadian equities, particularly sectors sensitive to domestic demand like financials and consumer discretionary. We are considering long positions in S&P/TSX 60 Index futures for broad market exposure. This situation is reminiscent of the post-2015 oil price shock period, where early signs of recovery led to a prolonged rally in the Canadian stock market.
