Statistics Canada reported that Canada’s GDP fell by 0.1% in June, the third consecutive decline since Statistics Canada, its first winning streak since 2022.
Royal GDP also signed 0.4% in the second quarter (–1.6% annualized), slightly lower after a 0.5% increase in Q1. GDP in the second quarter fell 0.4% on average per capita after rising 0.4% in the previous quarter.
“As expected, the economy in the second quarter was criticized by one or two shocks of weaker U.S. demand due to exports and caused tariffs within the scope of the first quarter,” wrote TD’s Rishi Sondhi.
The agency reported a 7.5% decline in the second quarter, including 24.7% shipments of vehicles caused by U.S. tariffs. The production industry sector fell 0.5% in June as manufacturing fell 1.5%, with about two-fifths of manufacturers reporting their activities negatively affected by tariffs.
BMO’s Benjamin Reitzes pointed out that the report was “not all bad news”, noting that household spending was higher, up 1.1% (4.5% year-over-year) and residential investment rose 1.6% (6.3% year-over-year).
Pre-information shows that real GDP increased by 0.1% in July.
Economists split on September’s fee call as GDP weakens
Economists say that between tariff pressure and softer U.S. demand, GDP data provides a mixed signal that makes Canadian banks’ tax rate decision uncertain in September. Some point out that these numbers are largely consistent with central bank forecasts and may not be enough to change policy.
Sandy believes that exceeding expectations of domestic demand could strengthen the case of bank holding rates. Still, he noted that a stronger third quarter could bring lower inflation, opening the door to further cuts.
“The contraction in total GDP also means that Slack established SLACK in the second quarter economy, and even if it performed better in the third quarter, the economy may still be oversupply,” he wrote. “This suggests that pressure on inflation is further downward, which may pave the way for more interest rates this year…especially when banks believe neutrality is neutral to the economy, policy rates are only in the medium term of policy rates.”
CIBC’s Andrew Grantham expects Bank of Canada to lower interest rates on September 17 and further relax as needed to support the recovery.
“We continue to think that some interest rates need to be lowered from Canadian banks to accelerate recovery, and assuming next week’s (employment) figures do not have fireworks, we predict the first one to be delivered at the upcoming September meeting,” he said.
However, the upcoming work and inflation report will provide further clarity ahead of the September decision.
The market allocates the probability of September by 55%, and gradually pays the entire price year by year.
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Last modified: August 29, 2025
