Canada Economy Shrinks Again But Rate Cut Remains Uncertain
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Canada’s economy recorded a 0.1 percent GDP contraction in April and is expected to see a similar drop in May, largely driven by weakness in the goods-producing sector. Manufacturing fell sharply—by 1.9 percent, marking its worst monthly decline in four years—with transportation equipment down 3.7 percent. Wholesale trade also declined by 1.9 percent, while real estate, construction, finance, and public administration provided modest offsetting growth.
These back-to-back monthly contractions suggest the second quarter is likely tracking toward an economic slowdown, fueled by U.S. tariffs on steel, aluminum, and autos. Despite early-year inventory accumulation, trade-exposed industries are showing signs of strain, and broader demand appears softening. Notably, while services and public sector activity have remained relatively resilient, overall macro sentiment remains fragile.
The Bank of Canada now faces the challenge of balancing deteriorating growth against still-sticky core inflation. Although consecutive GDP declines add pressure for monetary easing, central bank officials are awaiting further data—especially on inflation—before committing to rate cuts. Markets currently assign around a 37 percent chance of a rate cut at the July 30 meeting.
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