Canada's GDP shrank in April, with hefty decline in manufacturing
Advance estimate for May shows similar dip
Canada's economy shrank by 0.1 per cent on a monthly basis in April, Statistics Canada said on Friday, with the data agency's advance estimate for May showing a similar decline in activity.
The manufacturing sector alone dipped 1.9 per cent — the steepest drop since April 2021, per Statistics Canada — driving a decline among goods-producing industries.
Transportation equipment manufacturing was hit hard, which the data agency attributed to uncertainty caused by the trade war in the auto industry as car manufacturers pulled back on production in response to U.S. President Donald Trump's tariff on vehicle exports.
Wholesale trade also fell in April, particularly in sub-sectors related to autos and motor vehicle parts, as exports and imports of those products dropped.
The data agency is expecting economic growth to contract by 0.1 per cent again in May, signalling slower growth in the second quarter of the year as tariffs weigh on Canada's economy.
Bank of Canada governor Tiff Macklem warned during the central bank's last interest rate announcement that the impact of tariffs would be felt more acutely in the second quarter. First-quarter growth, while stronger than expected, was largely driven by pre-emptive activity as businesses stocked up on inventory ahead of Trump's tariffs.
The latest figures are "not that much of a surprise," said Douglas Porter, chief economist at Bank of Montreal, in an interview with CBC News. "The economy was dealing with an incredible amount of trade uncertainty through the spring.
"If there was any surprise, it was that — initially — Statistics Canada told us that the economy actually managed to advance in April, which really ran against almost everyone's expectations."
There's still some truth to the recession concerns that bubbled up earlier this year, he added. A technical recession — two consecutive declines in quarterly GDP — is possible, but Porter has doubts about a more serious downturn.
"When everything's tallied up, we may end up with a couple quarters of small declines in GDP. I personally don't think that quite rises to the level of what we economists would consider as a full-blown or garden-variety recession."
April trading frenzy drove growth
Investment activity largely drove the country's economic growth in April, with the finance and insurance sector growing 0.7 per cent — specifically financial investment services, funds and other financial vehicles.
"The announcement of U.S. tariffs on April 2 heightened trade tensions and prospects of a global economic slowdown, leading to unusually high activity on Canadian equity markets in April," noted Statistics Canada.
That led to a trading frenzy on the Toronto Stock Exchange in the four days that followed the announcement, which the data agency said was the "main contributor" to elevated activity in April.
Public sector activity also rose in April, mostly because of the federal election, while the arts, entertainment and recreation sector increased 2.8 per cent that month as several Canadian NHL teams qualified for the playoffs.
The Bank of Canada had initially drawn out two possibilities for the economy: a worst-case scenario that would play out in the event of a full-blown trade war and a more mild scenario in which tariffs would largely be removed.
The current reality is more of a middle ground, said Porter.
"I personally think that the way the Bank of Canada will look at this is, yes, the economy is struggling with the tariffs. It is managing to hang in there, but is struggling. And eventually we believe that they will be trimming interest rates further."
The central bank will make its next interest rate announcement and release its quarterly monetary policy report on July 30.
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