Canada's economy shrinks in April, with broad-based declines in manufacturing

Yahoo

21 hours ago

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.
"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 Bank of Canada (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."
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.
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.
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.
Statistics Canada's flash estimate for May forecasts another 0.1 per cent drop, 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.
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.
This story will be updated.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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