Canadian Monthly GDP (April 2025)

Canada's economy underdelivers in April, continued weakness expected in May

• Canadian GDP fell by 0.1% month-on-month (m/m) in April, underperforming Statistics Canada's advanced guidance for an uptick in growth. GDP growth in May is expected to pull back by another 0.1% m/m per the updated flash estimate. 
• Compositionally, 10 of 20 industries registered a decrease on the month. Goods industries fell by their largest margin since Jan-2024 (-0.6% m/m), while the services sector edged higher by 0.1% m/m. 
• The manufacturing sector (-2.5% m/m) dragged the entire goods side of the economy lower, led by a 3.7% m/m drop in transportation equipment manufacturing. The construction sector edged forward by a tenth of a percent, while the remaining goods sectors effectively flatlined in April.
• On the services side, a 1.9% m/m contraction in wholesale trade, led by motor vehicles and parts, was the biggest detractor to growth. The finance and insurance (+0.7% m/m) and public admin (+0.8% m/m) sectors provided positive offsets.
• The advanced guidance for a 0.1% m/m decline in May GDP is driven by decreases in the mining, quarrying and oil and gas sector, public administration, and retail trade.

Key Implications

• The downside risks to Canada's economic growth are beginning to manifest, especially in tariff-exposed sectors. April's underperformance combined with downbeat expectations for May leave second quarter growth tracking a mild contraction, setting up a sharp pullback from Q1 readings. Past this, the outlook through the belly of the year faces clear downside risk as the direct impact from tariffs add to the headwinds from plunging business and consumer sentiment. 
• The Bank of Canada will take this reading in stride, weighing softer economic growth against ongoing underlying inflation pressures. At their June meeting, the Bank decided to hold the policy rate steady at 2.75%, as they "proceed carefully" around risks and uncertainties. We think that the outlooks for growth and inflation have since moved the BoC a bit closer to delivering a 25 bps interest cut in July, but a bit more evidence will be needed for a decisive move. With Canada's labour market showing cracks, consumers reigning in spending, and the housing market visibly strained, we think the BoC has headroom to cut the policy rate two more times this year.            

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