Canada’s economy contracted sharply in the second quarter of 2025, falling at a 1.6% annualized pace and missing expectations for a more modest 0.7% decline, according to data released by Statistics Canada. The pullback underscores the toll of escalating trade tensions with the United States and weakening industrial production, especially across goods-producing sectors.
The decline marked the first quarterly contraction in real GDP since Q4 2022 and was mirrored by three consecutive monthly GDP decreases through June, also a first since late 2022. Goods-producing industries shrank 1.2% for the quarter, led by faltering activity in manufacturing, utilities, and mining, while services eked out a modest 0.2% advance.
Exports dropped 7.5%, the steepest quarterly decline since early 2020, as U.S.-imposed tariffs slashed international shipments of cars, machinery, and travel services. Passenger vehicle exports in particular plummeted 24.7%, contributing decisively to the broader downturn in economic activity.
Business investment also flagged, with machinery and equipment spending tumbling 9.4%, its worst performance, excluding pandemic quarters, since 2016. The weakness, exacerbated by tariff-related uncertainty, was partially offset by a surprise 3.6% rise in engineering structures following the arrival of a high-value offshore oil project module.
On the industrial front, manufacturing output fell 2.1% in Q2, dragged down by significant contractions in wood products, transportation equipment, and petroleum production. Utilities declined 3.5%, reversing last quarter’s gain, as hydroelectric generation was hit by worsening drought conditions.
Despite the headline contraction, domestic demand proved resilient. Final consumption expenditures rose 0.9%, driven by a 1.1% increase in household spending, with strong gains in new vehicle purchases and financial services softening the blow from weaker trade and investment.
However, per capita GDP declined 0.4% and household incomes were squeezed, with compensation of employees increasing just 0.2%, the weakest since 2016 outside the pandemic. The household saving rate declined to 5.0% from 6.0%, as consumers drew on savings to sustain spending amid lackluster income growth.
Advance estimates suggest a modest 0.1% GDP increase in July, with a rebound in real estate and mining partially offset by softer retail trade. While this hints at some stabilization, the broader outlook remains clouded by ongoing tariff regimes and subdued industrial momentum.
Source :
https://www.investing.com/news/economy-news/canada-gdp-falls-16-as-exports-and-business-investment-decline-4216687
