Canada’s GDP shrank in April, with hefty decline in manufacturing
Canada’s economy shrank by 0.1 per cent on a monthly basis in April, Statistics Canada said on Friday, with the data agency’s advance estimate for May showing a similar decline in activity.
The manufacturing sector alone dipped 1.9 per cent — the steepest drop since April 2021, per Statistics Canada — driving a decline among goods-producing industries.
Transportation equipment manufacturing was hit hard, which the data agency attributed to uncertainty caused by the trade war in the auto industry as car manufacturers pulled back on production in response to U.S. President Donald Trump’s tariff on vehicle exports.
Wholesale trade also fell in April, particularly in sub-sectors related to autos and motor vehicle parts, as exports and imports of those products dropped.
With U.S. President Donald Trump threatening to upend Canada’s automotive industry, some say it’s time for a homegrown solution. For The National, CBC’s Nick Purdon looks at what it would take to have an industry-leading Canadian car company.
The data agency is expecting economic growth to contract by 0.1 per cent again in May, signalling slower growth in the second quarter of the year as tariffs weigh on Canada’s economy.
Bank of Canada governor Tiff Macklem warned during the central bank’s last interest rate announcement that the impact of tariffs would be felt more acutely in the second quarter.
First-quarter growth, while stronger than expected, was largely driven by pre-emptive activity as businesses stocked up on inventory ahead of Trump’s tariffs.
“Going forward, we continue to expect the pain from trade uncertainties will stay relatively contained, leaving the economy softer but not substantially worse off by the end of this year,” wrote Claire Fan, a senior economist at RBC.
“With most of U.S.-Canada trade exempted from tariffs via an exemption for USMCA-compliant trade, Canada continues to face one of the lowest tariffs among major U.S. trade partners,” she added.
“The broader trade headwind will still slow U.S. demand for imports, including for Canadian goods. But we expect Canadian domestic demand to broadly hold up, and the economy to not fall into a recession.”
April trading frenzy drove growth
Investment activity largely drove the country’s economic growth in April, with the finance and insurance sector growing 0.7 per cent — specifically financial investment services, funds and other financial vehicles.
“The announcement of U.S. tariffs on April 2 heightened trade tensions and prospects of a global economic slowdown, leading to unusually high activity on Canadian equity markets in April,” noted Statistics Canada.
That led to a trading frenzy on the Toronto Stock Exchange in the four days that followed the announcement, which the data agency said was the “main contributor” to elevated activity in April.
Public sector activity also rose in April, mostly because of the federal election, while the arts, entertainment and recreation sector increased 2.8 per cent that month as several Canadian NHL teams qualified for the playoffs.
“The expected back-to-back declines in real GDP through the spring are not a big surprise, given the intense uncertainty the economy was dealing with at that time,” wrote BMO chief economist Douglas Porter in a note to clients.
“Overall, we suspect that GDP likely drooped at about a 0.5 per cent annual rate for all of Q2, and may come close to that in Q3 — certainly not good news, but also a less dire outcome than expected a few months back at the height of the tariff drama.”