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Canada’s economy shrank in the second quarter by a much larger degree than expected on an annualized basis as U.S. tariffs squeezed exports. But higher household and government spending cushioned some of the impact, data showed on Friday.
The GDP for the quarter that ended June 30 slowed by 1.6 per cent on an annualized basis from a downwardly revised growth of two per cent posted in the first quarter, Statistics Canada said, taking the total annualized growth in the first six months of the year to 0.4 per cent.
This was the first quarterly contraction in seven quarters.
A larger-than-expected deceleration in growth could boost chances of a rate cut by the Bank of Canada in September. The central bank has kept rates steady at 2.75 per cent at its last three meetings.
Money markets were predicting chances of a rate cut on Sept. 17 at close to 40 per cent before the GDP figures were released.
Statistics Canada said the economy contracted by 0.1 per cent in June, mainly led by a decline in output from goods-producing industries, which accounts for a quarter of the country’s GDP.
Analysts polled by Reuters had forecast second quarter GDP to contract by 0.6 per cent and the June monthly GDP to expand by 0.1 per cent.
Exports mainly responsible for sinking economy in Q2
Exports, mainly responsible for sinking the economy in the second quarter, declined 7.5 per cent during that period, the statistics agency said, adding this was the biggest drop in five years.
Business investment in machinery and equipment also contracted for the first time since the pandemic, with investments falling 0.6 per cent in the second quarter.
However, some silver lining in the second quarter came from a 3.5 per cent growth in the final domestic demand, an indicator of the health of the domestic economy.
This was mainly boosted by household final consumption expenditure which jumped by 4.5 per cent on an annualized basis, residential investments — which rose 6.3 per cent — and government final consumption expenditure which surged by 5.1 per cent, Statistics Canada noted.
