Canada’s economy shrank slightly in April, with monthly GDP falling by 0.1 percent—worse than the earlier estimate of 0.1 percent growth and below expectations for flat results. Eight out of twenty sectors recorded declines, led by goods-producing areas like manufacturing, which dropped by 1.8 percent, and wholesale trade, which also slipped. This dip mainly came from businesses rushing activity into earlier months to get ahead of new U.S. tariffs, making April appear slower in comparison.
Services sectors held up better. Public administration grew modestly, even with federal staffing cuts, and finance and insurance saw some gains. Overall, services ticked up by 0.1 percent, helping to soften the impact from the sharp drop in goods-producing industries. The difference between sectors shows how Canada’s economy is split—manufacturing and trade are hurting, while domestic service industries remain steady.
Early signs suggest the slowdown continued in May, with GDP also down 0.1 percent that month. Retail trade saw a big drop of 1.2 percent, and oil and gas extraction pulled back again, partly due to wildfires in Alberta. However, manufacturing rebounded with a 0.7 percent gain, and transportation and warehousing also recovered. These gains helped balance out some of the earlier weakness.
Looking at the full second quarter, the economy appears to be teetering between flat and slightly negative growth. Initial data suggests a small 0.1 percent GDP rise in June, which would result in roughly 0.1 percent annualized growth for the quarter. This would be just enough to avoid a technical recession, as long as the numbers aren’t revised downward. Some economists see this as a sign that Canada is holding steady, especially if domestic spending remains solid.
Still, there are warnings that the slowdown could go further. Some experts argue that interest rates may be too high and are pushing the economy down. They say the Bank of Canada should consider cutting rates soon if inflation stays low and economic activity continues to cool. The Bank has kept rates steady since April, but further cuts are expected if the slowdown deepens.
Trade issues with the U.S. continue to pose a serious risk. If tariffs increase or new ones are introduced, Canada’s economy could shrink further. But if trade remains stable, growth might hold around 0.7 percent for the year. The next few months will be key. For now, signs of a rebound are emerging, but the economy remains on shaky ground, with policymakers and businesses closely watching for what comes next.