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You are at:Home » Canada’s economy ‘treading water’ after GDP dropped for 2nd straight month
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Canada’s economy ‘treading water’ after GDP dropped for 2nd straight month

By favofcanada.caJuly 31, 2025No Comments4 Mins Read
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Canada’s economy shrank in May for the second straight month as the trade war with the United States continues to change some financial priorities for businesses and consumers alike.

This is because U.S. President Donald Trump’s tariff policies are starting to slowly increase some costs for businesses, which can potentially mean higher prices for consumers if those costs are passed along. However, the economy seems relatively stable for now, according to the latest economic data.

“Canada’s economy is treading water, neither sinking nor challenging Canada’s world gold medal swimming superstar Summer McIntosh,” says Derek Holt, vice-president and head of capital markets economics at the Bank of Nova Scotia.

Statistics Canada reported on Thursday that gross domestic product (GDP) for the month of May showed a 0.1 per cent decline compared with the previous month — the same amount seen in April compared with March.

Most economists expected a larger drop of 0.2 per cent for the May report.

GDP is the total value of goods produced and services provided in a country, and the figure is updated monthly, quarterly and annually. Most experts consider a period of two consecutive quarters, which covers a period of six months, of GDP decline as meeting the criteria for an economic recession.

“The economy continued to grapple with external headwinds; however, most of the May GDP decline was explained by temporary disruptions to oil extraction due to wildfires, with the manufacturing sector partially retracing a large April decline,” economist Abbey Xu at Royal Bank of Canada says.

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“The Canadian economic outlook remains highly contingent on the evolution of U.S. trade policy.”

Prime Minister Mark Carney has been looking to solidify a trade deal with Trump by Aug. 1, but so far, no agreement has been reached.

The sectors with the biggest declines in May included mining and quarrying, excluding oil and gas extraction, with a drop of 2.1 per cent.

Retail trade also contributed significantly to the overall GDP decline, with a drop of 1.2 per cent, and the subsector that contributed most to the drop was motor vehicles and parts dealers.

Statistics Canada notes that the drop in sales of motor vehicles and parts in May followed an increase in sales for the previous two months. The agency also highlights that sales of motor vehicles and parts in May 2025 were still 7.8 per cent higher than in June 2024.

Helping to offset some of the GDP declines in May, the sector with the most activity was manufacturing, which grew by 0.7 per cent following a drop of 1.8 per cent in April. Transportation and warehousing increased 0.6 per cent in May, coming off a 0.1 per cent decline in April, and led by rail transportation.

The arts, entertainment and recreation sector also helped offset some of the losses to GDP in May with a 0.2 per cent increase, thanks in part to the NHL playoffs, according to Statistics Canada.

“The arts, entertainment and recreation sector increased 0.2 per cent in May, a third consecutive increase, driven in large part by performing arts, spectator sports and related industries, and heritage institutions,” the agency said in its report.

“For the first time since 2004, three Canadian National Hockey League teams qualified for the second round of the playoffs, resulting in a higher than usual number of games taking place in Canada in May and contributing to increased activity in spectators’ sports in the month.”

Another sector that saw growth in May is real estate, rental and leasing, with a 0.3 per cent increase, which marked its second straight month of GDP gains.

Statistics Canada says this reflects higher home resale activity across the country, and partially offsets the declines for the previous four months.

More to come.


&copy 2025 Global News, a division of Corus Entertainment Inc.

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