Canada’s GDP Just Shrank… What It Means for You:
So big news dropped yesterday: Canada’s economy shrank in the second quarter of 2025. Let’s break down what happened, why it matters, and what to watch next.
📉 The Numbers
GDP fell 1.6% (annualized) in Q2… much worse than the 0.6% decline economists expected.
This was Canada’s first quarterly contraction in nearly 2 years.
For context, GDP measures the total value of everything we produce (i.e. goods, services, and investments).When GDP shrinks, it signals the economy is slowing.
🇺🇸 The Main Culprit: Tariffs
The U.S. tariffs hit Canadian exports hard:
Exports plunged 7.5%… the biggest drop in 5 years.
Passenger cars & trucks exports fell 24.7%, while industrial machinery dropped 18.5%.
Business investment also weakened… companies spent less on machinery and equipment.
Simply put: The trade war with the U.S. has been a major downer.
💳 The Bright Spot: Canadians Keep Spending
Even with trade struggles, Canadian households and the government kept the economy from collapsing:
Household spending jumped 4.5% (led by vehicles, food, and financial services).
Housing investment rose, thanks to new construction.
Government spending climbed 5.1%.
Economists call this “final domestic demand”, which actually grew 3.5% in the quarter.
Translation: Canadians’ wallets are still keeping money flowing through the economy.
⚖️ What It Means for Interest Rates
Markets are now debating what the Bank of Canada (BoC) will do next:
Some economists think the weak trade and investment numbers could push the BoC to cut interest rates on September 17 to support growth.
Others argue that strong consumer spending and housing show the economy isn’t weak enough to justify a cut yet.
The BoC’s decision will affect everything from mortgage rates to business loans.
📩 Final Thoughts
If the BoC cuts rates, borrowing could get cheaper (good for mortgages, lines of credit).
But slowing trade and weaker business investment could mean fewer jobs or slower wage growth if companies pull back.
For investors, rate cuts often support stock markets, but a weaker loonie could also impact import prices.
👀 What to Watch Next
September 5: Canada’s jobs report: a key signal before the BoC’s meeting.
September 17: Bank of Canada rate decision.
Trade tensions are clearly hurting Canada,but strong household spending is keeping the economy afloat… for now.
The real question is: can Canadians keep carrying the load if exports stay weak?
All eyes are now on the Bank of Canada’s next move.
If you’re an investor, business owner, or just someone keeping an eye on the economy, it’s worth staying tuned.
I’ll be watching closely, so you don’t have to.