Growth was not as predicted, as tariffs continue to play a role in economic fortunes
Canada's real GDP contracted 1.6 per cent on an annualized basis in Q2 this year, driven by a significant fall in goods exports according to a Statistics Canada report released today. Investment in machinery and equipment declined in the quarter as well. The downturn was offset somewhat by the faster accumulation of inventories, higher household spending, and fewer imports.
Explorts declined 7.5 per cent in Q2 after a 1.4 per cent increase in Q1. StatCan notes that as a direct consequence of US tariffs, exports of passenger cars and light trucks "plummeted" 24.7 per cent. Industrial machinery equipment and parts exports fell by 18.5 per cent as well.
Canadian counter-tariff responses also resulted in a net decline in imports from the United States, which offset GDP declines somewhat. Overall international imports fell by 1.3 per cent in Q2. Passenger vehicle imports fell by 9.2 per cent and travel services — a measure of Canadians travelling abroad — fell by 8.5 per cent. Intermediat metal product imports, notably of unwrought gold, silver, and platinum, rose by 35.8 per cent.
Economists had predicted a sharp drop in Q2 GDP, especially after Q1 numbers reflected the front-loading of imports from US customers which served to inflate GDP growth numbers. However, the decline in Q2 was more extreme than many had prdicted. This is the first quarterly contraction since Q3 of 2023.
The report follows earnings from Canada's big banks, which appeared to reflect surprising resilience in the Canadian economy. Provisions for loan losses at the banks were largely lower than analysts had predicted, reflecting an increased likelihood that Canadian businesses have been able to weather the tariff storm so far.
