- Sonny Scarfone
Principal Economist
Economic News
Quebec: A Second Consecutive Contraction Is Avoided, but Not for the Right Reasons
June 26, 2026
Highlights
- In the first quarter of 2026, Quebec’s real GDP increased by 1.3% at an annualized rate, contrasting with the slight contraction observed in Canada External link. (-0.1%).
- Domestic demand declined by 1.3% (table 1), and net exports also contributed negatively to growth. In this context, the increase in GDP is largely explained by inventory accumulation (+$1.3B).
- Business investment was the main positive in the quarter, rising for a second consecutive quarter (+1.8%). Despite a slowdown in non-residential structures following the end of 2025, the other components remained in positive territory.
- Public administration activities subtracted from growth, both through consumption (-1.1%) and investment (-11.3%). Consumption spending has been broadly stable in real terms since late 2024. On the investment side, the decline follows several quarters of strong gains, with levels remaining elevated by historical standards.”
- Trade flows continue to reflect the US’ protectionist shift. Exports to other countries declined by 6%, including an 8.8% drop in goods. Interprovincial trade remains subdued: exports to the rest of Canada rose by just 0.7%, while imports from other provinces fell by 5.5%.
Comments
Quebec will likely avoid the debate over the definition of a “recession,” recently reignited by the release of a second consecutive quarterly decline at the national level for the same period.
That said, the quarterly report contains few positive elements, although some results can be partly explained by contextual factors. Household consumption declined, but by less than the drop in the population over the quarter (-17,700 people, or -0.8% at an annualized rate). Meanwhile, the tightening of public spending, highlighted in the most recent provincial budget update External link., was expected.
In terms of investment, private sector data are relatively favourable. By contrast, the decline observed in public administrations is partly explained by base effects, following three consecutive quarters of double-digit increases.
It is nevertheless important to remain cautious. Quebec’s economy relies heavily on exports, and the US’ protectionist shift continues to weigh on growth prospects. Adding to this, the decline in the population is limiting the potential for domestic demand. In this context, the weak growth in interprovincial trade remains disappointing.
Implications
Quebec’s economy remains subdued at the start of 2026, and the growth carryover at the outset of the second quarter is not encouraging. GDP by industry points to a monthly contraction of 0.3% in March (table 2). This decline precedes the imposition of new tariffs on metal product exports, which are expected to add pressure on external trade. Quebec now faces the highest effective tariff rates in the country.
Even if today’s data came in above expectations, a pullback in the second quarter remains plausible, notably given the volatility of inventories from one quarter to the next. It is worth recalling that inventory accumulation was the main factor preventing Quebec’s GDP from posting another contraction. Meanwhile, the province’s real GDP remains at a level comparable to that observed in the fourth quarter of 2024 (graph). As highlighted in our latest Economic and Financial Outlook External External link., the foundations of growth remain fragile, whether due to demographics, the effects of energy prices, or the persistent uncertainty surrounding North American trade.
