Rosenberg research flags 1% growth as Canada enters recession watch
Canada’s economy is “on life support” even after 275 basis points of rate cuts, with weak growth, soft housing and a sliding currency sharpening questions about the Bank of Canada’s policy path, according to Rosenberg Research via BNN Bloomberg.
The report, Canadian Economy on Life Support, says per capita GDP is still falling and the economy is “growing at only one percent annually” despite the policy rate dropping from a high of five percent in 2024.
The report projects the economy will shrink in the fourth quarter, with output falling at an annualised rate of 0.5 percent quarter-over-quarter, compared with the Bank of Canada’s forecast of 0.0 percent.
Because the economy has already contracted in two of the last three quarters, the report says Canada is on “recession watch” for 2026.
David Rosenberg, chief economist and founder of Rosenberg Research, told BNN Bloomberg that “this is what 275 basis points of Bank Canada rate cuts delivers: the grand total of one percent growth economy,” and asked, “The next question is, is that all you get?”
He said the economy is growing below potential and pointed to the Bank of Canada’s own forecast that a “disinflationary output gap” will persist until the end of 2027.
In his view, “inflation in this country is not really an issue,” because virtually every underlying measure now sits within the Bank’s comfort zone.
On that basis, Rosenberg argued the central bank will “be compelled to cut rates further from its already egregiously low interest rate of 2.25 percent,” according to BNN Bloomberg.
He said the Canadian dollar is likely to face additional downward pressure and described the lack of momentum in currency‑sensitive sectors as “a huge disappointment.”
He argued that “as weak as the Canadian dollar has been up until recently, it’s probably not weak enough.”
He added that to be “bullish on the Canadian dollar,” investors need to see “real positive thrust in the areas of the economy that are most sensitive to the currency,” which he said “is just not happening.”
Sector data point to that weakness.
BNN Bloomberg reports that monthly numbers show GDP running at roughly one percent in the fourth quarter.
Rosenberg said “residential construction expenditures are flat as a beaver tail” over the past year and argued that predictions of Bank of Canada rate cuts “to reignite rounds of housing inflation” have not come true.
He said home prices nationwide have been flat or negative for 10 straight months and are now about two per cent lower than a year ago.
According to Reuters, Toronto Regional Real Estate Board data show seasonally adjusted home sales in the Greater Toronto Area fell 9.9 percent in January from December to 4,795 units, the biggest drop since February last year and the lowest level since May.
The board’s home price index declined 1.7 percent month-over-month, after seasonal adjustment, to $941,200, marking an eighth straight monthly fall.
Year-over-year, the index was down eight percent, with sales down 19.3 percent and new listings down 13.3 percent.
TRREB president Daniel Steinfeld said the housing market “reflects the tension many households are feeling as we look ahead to 2026.”
He noted that affordability has improved, but uncertainty still weighs on long‑term decisions like homeownership.
BNN Bloomberg reports that manufacturing, which “heavily relies on US trade,” is down five percent even with a “competitive exchange rate” and “red hot US economic growth.”
Rosenberg said that “when you adjust for whatever inflation there is at the retail level, there’s practically no growth there either,” and added that earlier hopes Canada’s relationship with the United States would improve now belong “in the waste paper basket.”
On the services side, Reuters said S&P Global’s Canada services PMI showed the downturn deepened in January.
The headline Business Activity Index slipped to 45.8 from 46.5 in December, the third straight monthly decline and below the 50 level that signals expansion.
The new business index fell to 44.9 from 45.6, marking a 14th consecutive month of contraction.
Paul Smith, economics director at S&P Global Market Intelligence, said “the downturn in Canada’s service sector unfortunately gathered pace during January with both activity and new business volumes declining to greater degrees than at the end of last year.”
He added that “tariffs and trade uncertainty, plus broader market instability” remained dominant themes for respondents.
Reuters reported that the S&P Global Canada Composite PMI Output Index edged down to 46.4 in January from 46.7 in December.
At the same time, cost pressures eased: the input prices index fell to 58.0 from 60.0, its lowest level since September 2024, as competition among vendors limited price increases, and the prices charged index also declined.
Canada’s manufacturing sector showed its first expansion in a year, with the S&P Global Canada Manufacturing PMI rising to 50.4 in January from 48.6 in December.
Rosenberg also framed the Canadian dollar against other commodity currencies.
According to BNN Bloomberg, he cited a “broad based debasement trade in the US dollar” and said Canadians should compare their currency with the Australian and New Zealand dollars because “those are our commodity-oriented brethren.”
He said the Canadian dollar has dropped “more than four percent” against those currencies in the past two months and argued, “It’s telling you that they have higher interest rates because they have stronger internal demand.”
Summing up the policy dilemma, Rosenberg said Canadians need to ask why “the most credit sensitive sectors like housing, construction and retail trade” are “stagnating or declining” if they believe the Bank of Canada’s interest rate hold is working.
As reported by BNN Bloomberg, his conclusion was: “That’s telling me that as much as the BoC has done, they haven’t done enough just yet.”
