RBC on Canadian Q2 GDP Figures

01:34 PM EDT, 08/29/2025 (MT Newswires) -- Canadian GDP growth slowed sharply in the second quarter, coming in weaker than expected at -1.6% on an annualized quarter-over-quarter basis, following a strong 2% gain in the first quarter.

The result was still broadly in line with the Bank of Canada's July forecast of -1.5% under its "current tariff scenario" and details were more mixed than headline figures suggest, writes RBC.

Weakness has largely remained concentrated in heavily trade exposed sectors. Most of the drop came from a steep drop in exports, tied to a broad-based fall in U.S. imports after the surge in pre-tariff stockpiling in Q1. Early signs point to that adjustment running its course, with U.S. advance trade data showing a 7% rebound in imports in July.

Excluding the net trade and inventory components, final domestic demand actually rebounded strongly after a weak Q1. Business investment fell sharply, but that was offset by a jump in household consumption and a recovery in residential investment.

Looking ahead, Statistics Canada's advance estimate pointed to a modest 0.1% increase in July GDP, consistent with early wholesale and manufacturing reports and another rise in home resales. Labour markets have also shown signs of stabilization.

RBC's base-case forecast still assumes GDP growth will be slow, but positive, through the second half of 2025. Canada's relatively favorable tariff position compared with other U.S. trade partners should help limit downside risks and reduce the likelihood of a slide into recessionary territory.

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