Manufacturing took the biggest hit, though a temporary lift from federal election activity and the NHL playoffs helped cushion the overall decline.

StatsCan’s advance estimate for May suggests a second consecutive monthly decline of 0.1%, pointing to a stalled second quarter for growth.

Most economists now expect a mild contraction in Q2 GDP, particularly as output in tariff-sensitive sectors like manufacturing and wholesale trade continues to decline in response to weaker demand

Goods sector contracts sharply, services fail to lift overall GDP

April’s weakness was concentrated in the goods-producing sector, which fell 0.6% — its largest monthly decline since January 2024. Manufacturing contracted 1.9%, led by a 5.2% drop in motor vehicle production. Durable goods manufacturing was down 2.2%, while food and petroleum production pulled non-durable goods down 1.6%.

Wholesale trade also dropped 1.9%, with motor vehicle wholesaling down 6.8%. Andrew Grantham of CIBC noted that the largest declines were in transportation-related sub-sectors, reinforcing the impact of front-loaded activity and ongoing tariff fallout.

“Unfortunately, there’s probably further weakness to come in that sector given
continued tariff uncertainty and reports of certain industries scaling back operations,” Grantham said.

Meanwhile, services eked out a 0.1% gain, helped by a 0.8% rise in public administration tied to the spring federal election. Arts and entertainment also climbed 2.8%, lifted by the NHL playoffs and strong attendance at games.

BMO’s Douglas Porter called April “a month of high drama,” noting that without the election and playoff boosts, GDP would have declined 0.2%.

Outlook: more weakness in May and a flat Q2

StatsCan’s flash estimate for May shows another 0.1% decline, driven by lower output in mining, public administration and retail. Though manufacturing wasn’t cited as a contributor, recent data on factory sales and wholesale activity suggest ongoing softness.

Marc Ercolao at TD says downside risks to growth are starting to materialize: “The direct impact from tariffs is adding to the headwinds from plunging business and consumer sentiment.”

Implications for the Bank of Canada

With real GDP now tracking anywhere from a 0.3% to 0.5% contraction in Q2, the data lands between the BoC’s April MPR scenarios: 0.0% for baseline and -1.3% for its downside case.

While that’s “certainly not good news,” wrote BMO’s Porter, he added that it’s also a “less dire” outcome than expected several months back.

Economists are largely in agreement that the softening growth backdrop gives the central bank room to cut again.

“We think the BoC has headroom to cut the policy rate two more times this year,” Ercolao said, though more evidence on inflation and jobs is needed ahead of the next rate decision in July.

Porter added that while the data is “mildly dovish,” sticky core inflation remains a hurdle: “We still have exactly one month of data before the next decision.”

Market pricing has modestly increased the odds of a July cut following the GDP miss, while bond yields have edged lower.

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Last modified: June 27, 2025