Canada’s economy shrank 0.1 per cent on a monthly basis in April, Statistics Canada said on Friday, a slower pace than analysts had expected. The contraction was largely the result of broad-based weakness in the manufacturing sector during a month characterized by heightened trade tensions with the U.S.
Economists had estimated Canadian real gross domestic product (GDP) would remain unchanged from March, according to consensus estimates published by BMO Economics. Statistics Canada’s flash estimate for April, published at the end of May, was for growth of 0.1 per cent.
Although the data fell short of muted forecasts and underlined the ongoing pressure on Canada’s economy, economists mostly agreed that it was likely not decisive enough to spur an interest rate move by the Bank of Canada (BoC).
“The resilience that the Canadian economy was previously showing in the face of U.S. tariffs and related uncertainty appears to be fading,” CIBC economist Andrew Grantham wrote in a note following the data release.
Grantham assessed the April decline as “only marginal,” and wrote that “the economy is certainly not falling off a cliff,” but appears headed for a 0.3 per cent contraction in the second quarter. Although an interest rate cut from the BoC at the end of July remains possible, Grantham wrote, “upcoming employment and inflation data will be more important in determining whether policymakers feel comfortable making a move at that time.”
Douglas Porter, chief economist at the Bank of Montreal, writes that GDP for the second quarter may be down 0.5 per cent from the year before, and could see a similar contraction in the third quarter. This, he says, is “certainly not good news, but also a less dire outcome than expected a few months back at the height of the tariff drama.”
BMO’s second-quarter expectations put GDP in between the BoC’s more optimistic 0.0 per cent and more pessimistic -1.3 per cent outlined in April, Porter notes. “We suspect that the underlying softness in growth and employment will eventually pave the way for additional rate relief,” he wrote, but higher core inflation figures might prevent a rate cut in the short term.
Statistics Canada’s flash estimate for May forecasts another 0.1 per cent monthly drop in GDP, with preliminary data showing slowdowns in mining, quarrying, and oil and gas extraction, public administration and retail trade. Friday’s numbers come after data on Tuesday showed inflation remaining flat from the previous month at 1.7 per cent annualized.
Desjardins Group economist Royce Mendes points out that if the May estimate holds, the two consecutive months of GDP decline would be the first in almost three years. Desjardins expects the BoC to cut on July 30, Mendes says, “with the stickiness in core inflation measures due mostly to unusual volatility in the April reading.”
In Friday’s release, Statistics Canada revised its March real GDP growth higher, to 0.2 per cent on a monthly basis. The agency had previously stated that real GDP grew 0.1 per cent from February.
Manufacturing dropped 1.9 per cent in April, the largest since April 2021, driven by large declines in durable goods subsectors connected to motor vehicle and other transportation equipment production. The contraction in those sectors came as car and light truck exports shrank, Statistics Canada notes, “as some motor vehicle manufacturers scaled back production amid uncertainty related to tariffs imposed on motor vehicle exports to the United States.”
Food, petroleum and coal product manufacturing had the largest declines in the non-durable goods sectors. Wholesale trade also dropped 1.9 per cent, which Statistics Canada noted in its release is the largest monthly fall since June 2023, with declines in seven of nine subsectors.
Finance and insurance grew 0.7 per cent on the month, with financial investment services, funds and other financial vehicles driving the growth. “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,” Statistics Canada says.
The arts, entertainment and recreation sector grew 2.8 per cent, with Statistics Canada noting that “five Canadian National Hockey League teams qualified for the playoffs for the first time since 2017, resulting in higher-than-usual attendance levels at the arenas in April, and contributing to increased activity in spectator sports in the month.”
Some economists said the Bank of Canada was unlikely to be swayed by the consumer price index (CPI) numbers and would be on the watch for further signs of a weakening economy ahead of their July 30 announcement. Reuters reported Thursday that market odds for an interest rate cut stood at 40 per cent.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
Content adapted by the team from the original source: https://ca.finance.yahoo.com/news/canadas-economy-shrinks-in-april-with-broad-based-declines-in-manufacturing-123349164.html
Leave a comment