Canada's economic growth rate for the second quarter of this year recorded a decline for the first time in seven quarters. The high tariffs imposed by the Donald Trump administration had a significant impact.
According to Statistics Canada on the 29th (local time), Canada's real gross domestic product (GDP) fell by 1.6% compared to the same period last year. This marks a contraction for the first time in seven quarters, significantly below the market forecast of -0.6% compiled by Reuters.
The decrease in exports to the United States dragged down Canada's economic growth rate. In the second quarter, exports to the U.S. fell by 7.5%, the largest decline in the past five years. Notably, exports of passenger cars and light trucks plummeted by nearly 25%. The United States is Canada's largest trading partner.
In the second quarter, investments by corporations in machinery and equipment also decreased by 0.6% for the first time since the COVID-19 pandemic. However, the domestic institutional sector grew by 3.5%, preventing further declines.
In March, after the Trump administration imposed a 25% tariff on steel and aluminum, Canada retaliated by imposing tariffs on some U.S. products. In response, Trump raised the mutual tariff rate on Canada from 25% to 35% on the 1st. Ultimately, Mark Carney, the Prime Minister of Canada, withdrew some of the retaliatory tariffs on the 22nd.
As Canada's economy contracted in the second quarter, the possibility of a rate cut by the Bank of Canada (BOC) is being discussed. The BOC's next monetary policy meeting is scheduled for the 17th of next month. In the last three meetings, the benchmark interest rate was maintained at 2.75%.