Why Canada’s recession risk hinges on labour market outcomes
While Canada’s economy remains under pressure from a technical recession and external geopolitical threats, panic among institutional investors would be premature.
That’s the message from BeiChen Lin, director and head of Canadian investment strategy at Russell Investments, who sees the global picture as broadly positive even as Canada navigates a more difficult path than most of its peers.
“The entire kitchen sink has been thrown at the markets and the economy,” said Lin. “Think back to 2025. We were talking about tariffs and what those impacts would be. Now in 2026, we had this war in the Middle East. But despite all of that, the US and for the most part the global economy have been pretty resilient through all this.”
Canada, however, has been a harder call, he emphasized.
“It’s been a tougher journey,” he said. “Our economic data in Canada has been a lot more volatile. The growth numbers have been basically swinging between positive and negative. And we recently entered technical recession, albeit a very, very small one, in the first quarter of 2026 … It is possible that number gets revised a little bit and maybe we actually don’t have a technical recession … I think a fair way to characterize the situation is regardless of whether you call it a technical recession or not, at the end of the day, the Canadian economy remains under pressure.”
What the employment rate means for market sentiment
While the unemployment rate sits at 6.6 per cent, above its long-term average of 6.2 per cent, a couple of months of stronger-than-expected job creation haven’t changed the underlying picture as Lin sees trade uncertainty compounding the pressure.
He also believes the labour market is where the recession narrative will be decided. If the unemployment rate holds at 6.6 per cent, the situation remains uncomfortable but manageable. If it climbs back above seven per cent, Lin expects market participants to start pricing in more serious recession concerns for Canada.
He drew a distinction, though, between the economy and the markets. Even in a scenario where Canadian growth stays weak, Canadian equities could still finish the year higher than where they sit today, provided the US economy remains resilient.
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