Mixed Messages: What the Most Recent Data Tell Us About the State of the Canadian Economy

Canada’s real GDP growth is expected to be flat or slightly negative in the next couple of quarters. Declining business investment along with a sharp drag from net exports—driven by strained US trade relations—should continue to weigh on economic activity.

Household consumption and government spending will likely offer some support to near-term growth thanks to resilient auto sales, ongoing employment gains and post-election fiscal stimulus. However, these may not fully offset the broader economic headwinds.

Labour market resilience is starting to fade, particularly in goods-producing sectors such as manufacturing. And although slower population growth may limit the rise in unemployment, it will also constrain overall GDP growth. But given that all signs point to continuing durables production in spite of US tariffs, inventories could rise further even as trade activity declines.

All told, whether the next couple of quarters ultimately qualify as a recession will be for scholars to decide. But what we know for now is that the Canadian growth outlook is pretty bleak because of US tariffs and the ensuing uncertainty.