Canadian Economy Edges Lower in April Amid US Tariffs

Strategic Insights -

The Canadian economy experienced a slight contraction in April, marking the first full month of US tariffs on various sectors, including steel, aluminum, and automotive industries. Despite the decline, Statistics Canada's advance estimate for May pointed to a similar drop, leaving the country's economic growth on a mild contraction trajectory. Experts warn that the direct impact of tariffs and plunging business and consumer sentiment pose significant downside risks to the economy.

Key Takeaways:

  • The Canadian economy's real gross domestic product (GDP) edged down 0.1% in April, with the manufacturing sector posting its largest drop since April 2021.
  • The manufacturing sector was down 1.9% in April, with durable goods manufacturing falling 2.2% and non-durable goods manufacturing dropping 1.6%.
  • Services-producing industries, however, edged up 0.1% for the month, with finance and insurance rising 0.7% and public administration gaining 0.8%.
  • The wholesale trade sector contracted 1.9% in April, while the arts, entertainment, and recreation sector gained 2.8%, likely due to the five Canadian NHL teams making the playoffs for the first time since 2017.
  • TD economist Marc Ercolao warned that the downside risks to Canada's economic growth are beginning to manifest, especially in tariff-exposed sectors.
  • CIBC senior economist Andrew Grantham echoed Ercolao's concerns, stating that an average growth rate of only around 1% for the first half of the year suggests slack in the economy is continuing to build.

Statistics:

  • GDP growth rate in April: -0.1%
  • Manufacturing sector decline: 1.9%
  • Durable goods manufacturing decline: 2.2%
  • Non-durable goods manufacturing decline: 1.6%
  • Services producing industries growth: 0.1%
  • Wholesale trade sector contraction: 1.9%
  • Arts, entertainment, and recreation sector growth: 2.8%
  • Annualized GDP growth in Q1: 2.2%

Sources:

  • "Canada's real GDP edges lower in April, lowers expectations for May", Statistics Canada, no date provided.
  • "Canada's economy under more pressure from US tariffs", The Canadian Press, no date provided.
  • TD Economic Insights, Marc Ercolao, no date provided.
  • "CIBC Economics", Andrew Grantham, no date provided.