OTTAWA – Canada’s economy contracted for a second straight month in May even as some sectors held up in the face of U.S. tariffs.
Real gross domestic product fell 0.1 per cent in May, Statistics Canada said Thursday, matching the decline in April.
The agency said goods-producing sectors were to blame for the drop, particularly in mining, quarrying and oil and gas extraction. RBC pointed to wildfires in the Prairies temporarily dragging down oil and gas activity.
Marc Ercolao, an economist with TD Bank, said in an interview that Canada’s services sectors are holding up relatively well even as trade-exposed industries feel some sting from U.S. import duties.
“We’re still in the early days, but we are seeing the impact of tariffs flow through some of these industries,” he said.
Manufacturing, one of the most tariff-exposed sectors of the economy, continues to face headwinds. Though the sector grew 0.7 per cent in May, that wasn’t enough to fully recoup a 1.8 per cent drop in April. StatCan’s early estimates also see the industry contracting again in June.
Transportation and warehousing also rebounded from an April decline.
“The good news here is that the Canadian economy seems to have soldiered through the period of maximum trade uncertainty with less damage than initially expected,” wrote BMO chief economist Doug Porter in a note to clients Thursday.
StatCan’s early estimates for June show an expected rebound of 0.1 per cent in real GDP. The agency pointed to strength in retail and wholesale trade driving the growth.
Taken together, the agency said its advance reading for the second quarter of the year shows the economy was essentially flat. Its early estimates will be updated with the release of the June GDP figures next month.
Ercolao said he expects these conditions to broadly persist until Canada can secure a trade deal with the United States.
“As long as there is this lingering uncertainty, it’s going to impact economic activity across industries, it is going to impact investment decision making, and that would probably lead to another weaker Q3,” he said.
U.S. President Donald Trump has imposed a Friday deadline to strike a deal with Canada, or else he has threatened to put a 35 per cent tariff on Canadian goods.
The Bank of Canada said in its monetary policy report Wednesday that it expects real GDP fell 1.5 per cent on an annual basis in the second quarter amid considerable uncertainty tied to U.S. tariffs.
Porter noted that the StatCan monthly GDP figures measure output by industry, while the Bank of Canada’s estimates will track actual spending in the economy.
“The output and spending estimates don’t always line up, especially when there is a big change in exports and imports, as was certainly the case in each of the past two quarters,” he wrote.
Porter said a sharp drop in Canada’s export volumes tied to the U.S. trade disruption will likely drag down second quarter GDP based on spending — figures StatCan will release at the end of August.
The Bank of Canada held its policy rate steady at 2.75 per cent for a third consecutive time on Wednesday amid what it called signs of resilience in the Canadian economy.
Ercolao said that, since the May GDP figures were roughly in line with expectations, the Bank of Canada probably won’t be swayed one way or another by the latest data.
“We just had the Bank of Canada meeting yesterday and they seem to be OK with where the economy is,” he said.
The central bank will get two more looks at inflation before its next interest rate decision on Sept. 17, which Ercolao said would have a bigger say in where interest rates head from here.
Financial market odds of an interest rate cut at the September meeting were broadly unchanged at around 14 per cent by noon Thursday, according to LSEG Data & Analytics.
StatCan said a busier May for home resales, particularly in Toronto, saw activity tick up in the real estate and rental industry. Ercolao said it’s too soon to say whether this is the start of a new trend in the housing market or just a blip, “but there’s some early signs that there might be some recovery on the horizon.”
With three Canadian teams advancing to the second round of the NHL playoffs, StatCan said the spectator sports industry was on the rise in May as well.
The public sector meanwhile saw declines after a run-up of activity tied to the federal election in April.
This report by The Canadian Press was first published July 31, 2025.
