Canada’s GDP for the second quarter contracted by 1.6% on an annualized basis, following a downwardly revised 2.0% expansion in the first quarter (Statistics Canada), resulting in a total annualized growth of 0.4% for the first six months of 2025.
 

The weakness was in line with Bank of Canada forecasts but significantly worse than the .60% drop the consensus was expecting.

Significant sources of weakness included a 7.5% decline in exports during the second quarter, the largest drop in five years, as well as a 0.6% contraction in business investment in machinery and equipment–the first such decline since the pandemic.

Residential investments rose 1.5% in the second quarter of 2025, driven by an increase in new construction (in blue below, starting from Q3 2022). Ownership transfer costs, which represent residential resale market activity, rose 1.0% in the second quarter (in red), recovering slightly from a 16.3% decline in the first quarter. Residential renovations declined 1.1% in the second quarter (light blue).
 

Early tracking suggests a flat-to-slightly negative estimate for Canada’s third-quarter GDP. The BoC estimated last month that Canada’s economy would grow by around 1% in the second half under the current tariff scenario.

Money markets increased the odds of a 25-basis-point cut from the Bank of Canada (lowering its policy rate to 2.5%) on September 17 to 48% from 40% before the GDP figures were released. The segment below offers further detail.

There is no escaping the Pringles can. While the Bank of Canada has been on hold with its rate cutting since March, Canadian GDP, payrolls and even the latest Canadian CPI figures leave no doubt. Plus, the globally synchronized implications will be heard in central bank deliberations worldwide. Here is a direct video link.

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