The Organisation for Economic Co-operation and Development (OECD) is forecasting that Canada will avoid an economic recession this year, although growth is expected to be flat.
In its latest outlook for Canada, the OECD is forecasting growth to come in at 1% for all of 2025, with economic activity contracting in the second quarter of the year, followed by flat growth.
Many other economists, including at Canada’s banks, are predicting two back-to-back quarters of negative economic growth this year, which is the technical definition of a recession.
However, while the Paris-based OECD is more positive than many on the outlook for Canada’s economy, it does expect the labour market to deteriorate over the next two years.
Specifically, the OECD forecasts that Canada’s unemployment rate is likely to hit 7.1% this year and 7.3% in 2026.
The country’s unemployment rate is currently at 6.9%, with employment losses rising sharply in the manufacturing sector.
The OECD, which is an intergovernmental organization focused on stimulating economic growth and world trade, says Canada is well-positioned to absorb the trade shock caused by U.S. tariffs in the short-term.
But longer-term, the federal government in Ottawa should focus on lowering debt to more sustainable levels, says the organization. High household and mortgage debt is also a risk.
Lastly, the OECD once again highlighted the need for Canada to improve its productivity, which continues to lag the average of the organization’s 38 member countries.
