Russell Investments’ BeiChen Lin offers a constructive outlook for H2 2026’s labour market as he argues Canadian economy is under pressure but not broken
While Canada’s economy remains under pressure from a technical recession and external geopolitical threats, panic among institutional investors would be premature.
That’s the message from BeiChen Lin, director and head of Canadian investment strategy at Russell Investments, who sees the global picture as broadly positive even as Canada navigates a more difficult path than most of its peers.
“The entire kitchen sink has been thrown at the markets and the economy,” said Lin. “Think back to 2025. We were talking about tariffs and what those impacts would be. Now in 2026, we had this war in the Middle East. But despite all of that, the US and for the most part the global economy have been pretty resilient through all this.”
Canada, however, has been a harder call, he emphasized.
“It's been a tougher journey,” he said. “Our economic data in Canada has been a lot more volatile. The growth numbers have been basically swinging between positive and negative. And we recently entered technical recession, albeit a very, very small one, in the first quarter of 2026 ... It is possible that number gets revised a little bit and maybe we actually don't have a technical recession … I think a fair way to characterize the situation is regardless of whether you call it a technical recession or not, at the end of the day, the Canadian economy remains under pressure.”
What the employment rate means for market sentiment
While the unemployment rate sits at 6.6 per cent, above its long-term average of 6.2 per cent, a couple of months of stronger-than-expected job creation haven't changed the underlying picture as Lin sees trade uncertainty compounding the pressure.
He also believes the labour market is where the recession narrative will be decided. If the unemployment rate holds at 6.6 per cent, the situation remains uncomfortable but manageable. If it climbs back above seven per cent, Lin expects market participants to start pricing in more serious recession concerns for Canada.
He drew a distinction, though, between the economy and the markets. Even in a scenario where Canadian growth stays weak, Canadian equities could still finish the year higher than where they sit today, provided the US economy remains resilient.
“Canada's economy looks very different from its markets,” said Lin. “In a base case scenario where the Canadian economy is slow and sluggish, but the US economy is resilient, Canadian equity markets could still escape relatively unharmed. It could end the year higher than where it is today just because so much of the revenues of Canadian companies come from outside of Canada.”
US faces less recession risk than Canada
Russell Investments expects US GDP growth of roughly 2.25 to 2.5 per cent for 2026, in line with long-term trend potential, supported by an unemployment rate around 4.2 per cent and still-healthy consumer spending in aggregate. The firm has lowered its US recession probability to 15 per cent, down from 20 per cent in April - back to what Lin considers a normal level.
CUSMA negotiations are also top of mind for Lin and the firm. While he acknowledged the US’ decision not to renew CUSMA wasn't a surprise, the shift to annual reviews has introduced a new drag on business confidence.
“This process creates some additional uncertainty, and businesses do not like uncertainty. And in that type of uncertain environment, they could cut back on their hiring, they could hold back on capital expenditures,” he said.
Bank of Canada could ease recession risk
To that end, Russell continues to put Canada's recession probability at 45 per cent for the year ahead - triple the 15 per cent figure for the US. With the economy facing those headwinds, Lin argued the Bank of Canada may need to do more. The firm has run various iterations of the Taylor Rule, an economic framework that maps growth and inflation conditions to an appropriate policy rate and found that some versions suggest the BoC should already have rates lower than where they sit today.
That puts the firm at odds with market pricing, which leans toward a possible half rate hike by year-end. Lin sees the opposite risk.
"We'd actually say that the balance of risk skewed towards the BoC continuing to cut rates at some point this year, rather than what the market is expecting, which is potentially half a rate hike by the end of this year," he said.
What might improve Canada’s economy?
Ultimately, though, for Lin, the real signals of improving economic momentum in Canada have less to do with how financial markets perform and more to do with three specific factors: whether the trade situation clarifies and a renewed deal between Canada, the US, and Mexico materializes; where the labour market heads for the rest of the year; and whether the output gap - the distance between where the economy is operating and where it could be - shows signs of closing.
“I think those are more important signals in terms of the health of the economy versus the impacts of the markets,” said Lin.
