According to real-time data from Statistics Canada, there was a 0.1 percent decline in real GDP for April. This decrease indicates a recession in the pillars of the Canadian economy. The manufacturing sector saw a major contraction of 1.9 percent, the biggest decrease since the month of April 2021. The economy came off a very robust first quarter short, including an eye-opening 2.2 percent annualized GDP growth. Now though, we are in a bust cycle.
That drop in manufacturing was largely the result of a 2.2 percent dip in durable goods manufacturing. This decreasing pattern began when the United States tariffs came into effect on a number of sectors in Canada. Importantly, these tariffs hit the U.S. steel, aluminum, and automotive industries in their first full month. The broad weakness in April does lead to some concerns about what that might mean for the pace of overall economic growth in the next few months.
Services Sector Shows Modest Growth
As the goods-producing sector fell, the services-producing industries continued to increase, albeit only by 0.1 percent in April. Finance and insurance saw a significant jump of 0.7 percent. At the same time, public administration expanded by 0.8 percent, both underscoring the overall modest growth in services as a whole.
The wholesale trade sector shrank by 1.9 percent over that same stretch. It’s a mixed picture in the services sector, that highlights our patchy economic recovery. For some industries, the future looks bright, while for others, the burden of great catastrophe awaits.
The arts, entertainment, and recreation sector shone brightly with a robust overall gain of 2.8 percent. Five Canadian NHL teams qualified for the playoffs this spring, marking the first time since 2017 all Canadian teams missed the postseason. It’s no coincidence that this success directly led to more consumers participating in recreational opportunities.
Economic Outlook Remains Grim
Public economists are reporting bad vibes about the economic outlook after such a great April. As Marc Ercolao from IHS Markit points out, the weakness in April and a pessimistic outlook for May imply a modest contraction in Q2 growth. That foreshadows quite a regression from the lofty return that Q1 delivered.
He warns that other than this, prospects for the remainder of the year are dire. The immediate, damaging effects of tariffs is exacerbating the damage from collapsing business and consumer confidence. NOAA’s Andrew Grantham certainly expresses it well in this good piece. For the first five months of the year, he cautions that the average monthly growth rate is only around one percent and indicates very low momentum as we’re moving into the summer. This is another sign that economic slack is developing and the Bank of Canada will likely have to deliver additional interest rate cuts to foster a recovery in the second half of the year.
