GDP slips 0.1 percent in April as U.S. tariffs drive down exports, wholesale, and auto production
Canada’s manufacturing sector posted its steepest drop since 2021 in April, pulling the country’s GDP down 0.1 percent and signalling a shift in momentum that could affect investment outlooks across trade-exposed industries, according to Statistics Canada.
The decline in real GDP came as manufacturing contracted by 1.9 percent, the largest monthly drop since April 2021, with durable goods down 2.2 percent and non-durable goods down 1.6 percent.
The data agency attributed the drop to uncertainty stemming from newly imposed US tariffs, which took full effect in several sectors, including steel, aluminum, and autos.
According to Statistics Canada, the broader goods-producing industries declined 0.6 percent, with manufacturing accounting for nearly the entire pullback.
The wholesale trade sector also dropped 1.9 percent—its largest monthly decline since June 2023—while transportation and warehousing declined under similar pressures.
Economists expect the second quarter to reflect a mild contraction.
As per TD economist Marc Ercolao, “April’s underperformance combined with downbeat expectations for May leave second quarter growth tracking a mild contraction.”
He added that “the outlook through the belly of the year faces clear downside risk as the direct impact from tariffs add to the headwinds from plunging business and consumer sentiment.”
Statistics Canada’s advance estimate for May also showed a 0.1 percent contraction, continuing the downward trend that began after businesses accelerated inventory purchases ahead of tariff implementation.
The first quarter had seen an annualized GDP growth of 2.2 percent due to that front-loaded activity.
According to BMO’s Douglas Porter, GDP has been “essentially held to a standstill” across the spring months.
Porter noted that the auto sector alone pulled back by 5.2 percent and said real GDP in April might have fallen 0.2 percent without support from temporary boosts like the NHL playoffs and the federal election.
Statistics Canada confirmed that the arts, entertainment and recreation sector grew by 2.8 percent in April, citing the participation of five Canadian NHL teams in the playoffs—the most since 2017.
The finance and insurance sector grew 0.7 percent, driven by elevated activity in financial markets.
Statistics Canada noted that a surge in trading on the Toronto Stock Exchange followed the April 2 US tariff announcement, which spurred investor activity amid heightened global trade tensions.
The pressure on Canada’s export-driven industries intensified as the US announced further tariff measures.
According to The Globe and Mail, US President Donald Trump stated his administration would soon reveal additional tariffs on Canadian goods, following a breakdown in trade talks related to a proposed digital services tax.
Ottawa, meanwhile, has tempered expectations on those negotiations and issued targeted relief on counter-tariffs for some critical manufacturing sectors.
CIBC economist Andrew Grantham said “the resilience that the Canadian economy was previously showing in the face of US tariffs and related uncertainty appears to be fading.”
He now expects a second-quarter GDP contraction of 0.3 percent and average growth of just 1 percent for the first half of the year.
Grantham also noted that “slack in the economy is continuing to build and that further interest rate cuts from the Bank of Canada will be needed to support a recovery later in the year.”
While some economists argue the current weakness falls short of a full recession, concerns remain.
Porter told CBC that although technical recession—two consecutive quarters of GDP decline—is possible, the conditions do not yet meet the “full-blown” criteria.
Canada’s trade deficit hit a record $7.1bn in April, according to The Globe and Mail, as exports to the US fell 15.7 percent compared to the previous month.
RBC’s Claire Fan said the GDP contraction stems from a limited number of sectors heavily exposed to tariffs.
She added that “the broader trade headwind will still slow US demand for imports, including for Canadian goods,” but expects Canadian domestic demand to hold steady and the economy to avoid recession.
The Bank of Canada kept its policy rate unchanged at 2.75 percent earlier in June.
According to the central bank’s summary of deliberations, its governing council discussed a possible rate cut but held off, citing uncertainty around the US trade dispute.
The next interest rate announcement and monetary policy report is scheduled for July 30.
Sources: Statistics Canada, BNN Bloomberg, Financial Post, CBC, and The Globe and Mail.
