Canada’s gross domestic product fell 0.1% in June, the third straight monthly decline and the first such streak since 2022, Statistics Canada reported.
Real GDP also contracted 0.4% in the second quarter (–1.6% annualized), following a 0.5% gain in Q1, which was revised slightly lower. On a per-capita basis, GDP declined 0.4% in Q2, after rising 0.4% in the previous quarter.
“As expected, the economy contracted in the second quarter, as exports were walloped by the one-two punch of weaker U.S. demand and the unwind of a tariff-front running induced surge in Q1,” wrote TD’s Rishi Sondhi in a note.
The Q2 contraction was led by a 7.5% drop in exports, including a 24.7% plunge in vehicle shipments due to U.S. tariffs, the agency reported. Goods-producing industries contracted 0.5% in June as manufacturing fell 1.5%, with about two-fifths of manufacturers reporting that their activities were negatively affected by tariffs.
BMO’s Benjamin Reitzes noted the report “wasn’t all bad news,” pointing to stronger household spending, up 1.1% in the quarter (4.5% annualized), and residential investment, which rose 1.6% (6.3% annualized).
Advance information indicates that real GDP increased 0.1% in July.
Economists divided on September rate call as GDP weakens
Between tariff pressures and softer U.S. demand, economists say the GDP data offers mixed signals, leaving September’s Bank of Canada rate decision uncertain. Some noted the figures were largely in line with the central bank’s forecast and may not, on their own, be enough to shift policy.
Sondhi argued that stronger-than-expected domestic demand could strengthen the case for the Bank to hold rates. Still, he noted that a stronger third quarter could bring lower inflation, opening the door to further cuts.
“The contraction in overall GDP also implies that slack built in the economy in Q2, and even with a better performance in Q3 likely on tap, the economy probably remains in excess supply,” he wrote. “This points to further downward pressure on inflation and could pave the way for more rate cuts this year…especially with a policy rate only at the mid-point of what the Bank considers neutral for the economy.”
CIBC’s Andrew Grantham expects the Bank of Canada to cut rates on Sept. 17 and sees further easing as necessary to support the recovery.
“We continue to think that a couple more interest rate cuts from the Bank of Canada are needed to accelerate the recovery, and assuming no fireworks in next week’s (employment) figures, we forecast the first of those being delivered at the upcoming September meeting,” he said.
Nevertheless, upcoming jobs and inflation reports will provide further clarity ahead of the September decision.
Markets are assigning a 55% probability to a September cut, with a move by year-end fully priced in.
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Last modified: August 29, 2025