By building more houses to bring down prices and addressing regulatory barriers like internal trade, Canada could improve its' economic outlook, according to an OECD report. (Credit: Dan Janisse/Windsor Star/Postmedia files) Canada will narrowly avoid falling into a recession in 2025 and post flat economic growth for the year, according to an outlook released Monday by the Organisation for Economic Co-operation and Development. “We’re not talking about rates of growth that are very strong, but Canada will avoid in this case a recession,” said OECD chief economist Álvaro Pereira, during a presentation in Ottawa.

In its Canada economic survey, the OECD is forecasting growth to come in at one per cent for 2025, with economic activity contracting in the second quarter of this year and flat growth for the remainder of the year. Unlike other economists who are predicting two back-to-back quarters of negative growth in 2025, the OECD is not forecasting a technical recession. The report also projects that Canada’s labour market will deteriorate substantially over the next two years.

The unemployment rate is expected to hit 7.1 per cent this year and 7.3 per cent in 2026. Canada’s unemployment rate hit 6.9 per cent in April, with significant loss of employment in the manufacturing sector. “Certainly, the labour market is deteriorating,” said Pereira.

“It’s partly a reflection of what we see in terms of policy uncertainty, there is less investment, there is less consumption, and this is reflected in the labour market.” Slow economic growth and higher unemployment will put more pressure on fiscal policy. Pereira said Canada is well-placed to absorb the trade shock brought on by U.S. tariffs in the short-term, but in the medium-term should focus on bringing debt down to more sustainable levels. “We do think it’s important to maintain the fiscal anchors that have been allowing good performance in Canada,” said Pereira.

“We also think that once trade tensions subside, we think (debt) should be brought down on a declining path.” Pereira added that debt pressures will continue, as spending on defence, social programs and healthcare costs will remain a priority for governments. Pereira said one of the biggest risks facing Canada is high household and mortgage debt, noting that low-income households are spending a significant proportion of their incomes on housing. Canada’s household debt remains one of the highest in the OECD.

“The last thing Canadians stop paying is their mortgages, so we know traditionally this is not a problem,” said Pereira. “Having said that, when we start with fairly high mortgage debt and fairly high household debt, of course if there are significant shocks in the economy like we’re going through now, this might put some families at risk in terms of the next few years.”