This article originally appeared in The Hub.
By Trevor Tombe, August 13, 2026
For several months this past year, Canada’s economy was often described as being in a recession. Last week, after a strong jobs report, some described it as “on fire.”
Both reactions are understandable, at least on the surface. Employment rose by 75,000 in July, and the unemployment rate fell. And when the second-quarter GDP arrives later this month, growth may turn out to be the strongest in more than three years.
The numbers are good, and the economy does appear to be turning the corner. That’s very welcome. But the swing from one label to the other tells us more about how fast the mood can shift than about how much the economy has actually changed.
A better way to think about it is this: Canada is gradually returning to normal rates of growth, but along a permanently lower path. And measured against our peers, or even against our own potential, recent performance looks anything but strong.
One report, wide error bars
July was a genuinely good report. Employment rose by 75,000—a solid 0.4 percent gain in a single month, in an economy with roughly 21.2 million workers. The unemployment rate fell to 6.4 percent. The gains were broad, across sectors, age groups, and provinces.
But the Labour Force Survey is a survey. It’s essentially a large, well-run poll asking people whether they’re working (among many other questions). And like any poll, it comes with a margin of error—and that margin is much larger than most people assume. The July gain of 75,000 is actually plus or minus about 66,000, 19 times out of 20. Between June and July, every province except Ontario saw changes within their own respective margins.
That’s not a knock on Statistics Canada. It’s normal sampling error. But it means any single month tells us very little on its own.
The trend is what matters, and the trend is up—just not as sharply. I estimate that trend employment (calculated similarly to StatCan’s approach) rose by roughly 25,000 in July. One-third the headline growth.
The trend unemployment rate is improving too, and has been since the middle of last year. It now sits near 6.5 percent, down from a peak of 7 but up from roughly 5 percent four years ago.
So the labour market is getting better. That’s good news. But it is not an economy on fire.
We’re still far short of where we were headed
The clearest way to see this is to compare where the economy is to where we expected it to be.
Before President Trump changed the trade relationship at the start of 2025, the Bank of Canada projected that by the second quarter of 2026, Canada’s economy would be 2.4 percent larger than it was in the first quarter of 2025.
Instead, the economy has barely grown at all. Output in the second quarter of this year is likely close to where it stood a year and a half earlier. That’s slightly below even the better of the tariff scenarios the Bank laid out in its July 2025 Monetary Policy Report, as I illustrate below.
The gap is close to 2 percent. In dollars, that means Canada’s economy is roughly $60 billion, or about $1,400 per Canadian, smaller. That’s large.
And that gap doesn’t close on its own. Even if growth returns to normal rates, we simply continue along a trajectory about 2 percent lower than before. Indeed, the Bank of Canada’s latest projections point to quarterly growth through the third quarter of 2026 that is roughly in line with what it was forecasting back in 2025, which means the gap stays about where it is.
Growth returning, in other words, is not the same as the economy catching fire. It mostly means the adjustment to the new trade reality has worked its way through.
And we’re behind our peers
The international comparison tells the same story.
Since the first quarter of 2025, real GDP across the OECD has grown 1.7 percent on average. Canada’s has shrunk by about 0.1 percent.
Meanwhile, Mexico, also heavily exposed to U.S. trade policy, grew 0.4 percent. The European Union grew 0.8 percent. The United Kingdom, which has had a difficult run since voters chose to make trade with Europe harder with Brexit, grew 0.9 percent. The G7 average was 1.7 percent. Australia grew 2.5 percent. The United States grew 2.7 percent.
Some of this reflects Canada’s recent slower population growth, so per-person figures may be more relevant. There we’ve done better—real GDP per person was 0.2 percent higher in the first quarter of 2026 than a year earlier. But with the exception of Mexico, every economy above still beats us. The OECD averaged 1.5 percent per person. The G7 averaged 1.6 percent. Australia came in at 1 percent, and the U.K. and EU at 0.7 percent each.
By these measures, Canada has been languishing.
Nor is the problem that we’re running below our own capacity. The Bank of Canada’s most recent estimate puts the economy about 1 percent above its own underlying potential—roughly where it has sat in most quarters over the past four years. The first half of 2026 looks much like the first half of every year going back to 2022. What’s been lagging isn’t output relative to potential. It’s potential itself.
Optimistic, but clear-eyed
None of this makes me a pessimist. I’m genuinely optimistic about the quarters ahead (even despite some additional tariffs that may be headed our way).
The Canadian Chamber of Commerce’s Business Data Lab, for example, runs a really cool real-time nowcasting tool that currently puts second-quarter growth well above most professional forecasts, and I tend to share that optimism. That means unemployment should keep falling (barring new international shocks or a fresh rise in uncertainty, of course) and the Bank of Canada may even begin raising rates early next year (if not earlier, although that’s probably a coin flip at this point).
But rising growth off a lower base is not the same as a strong economy. Canada is getting closer to normal growth rates along a permanently poorer trajectory than the one we were on before January 2025.
That’s the context worth keeping in mind.
Trevor Tombe is a professor of economics at the University of Calgary, the Director of Fiscal and Economic Policy at The School of Public Policy, a Senior Fellow at the Macdonald-Laurier Institute, and a Fellow at the Public Policy Forum.
