Canada's Economy Faces Unexpected Contraction Amid U.S. Tariff Impact
Canada's economy sharply contracted in Q2, largely due to U.S. tariffs affecting exports, but was supported by increased household and government spending. This has increased the likelihood of a Bank of Canada rate cut in September, with critical data on jobs and inflation pending.
In a surprising turn, Canada's economy contracted significantly in the second quarter, with annualized GDP shrinking by 1.6%. The contraction follows U.S. tariffs squeezing exports, although the impact was cushioned by higher household and government spending, according to Statistics Canada data released Friday.
The contraction marks the first quarterly decline in seven quarters and could prompt a Bank of Canada interest rate cut next month. The likelihood of a rate reduction rose to 48% following the GDP announcement. Significantly, GDP fell 0.1% in June, led by a decline in goods-producing industries.
Despite slim growth forecasts for July, the economy could still be flat in Q3. The Canadian dollar dipped slightly and two-year government bond yields dropped further post-data release. Key components of domestic demand, like household consumption and residential investments, showed strength despite export declines.
(With inputs from agencies.)
Google News