Canada's Economy Feels "The Summertime Blues", Says Rosenberg Research

12:33 PM EDT, 09/02/2025 (MT Newswires) -- The Canadian economy performed much weaker than expected in Q2 as real gross domestic product contracted at a 1.6% annual rate, which was more than double the 0.7% consensus view, said Rosenberg Research after Friday's data.

This was the first decline since Q3 2023, and the steepest drop since Q2 2020 (when the pandemic was raging), noted Rosenberg Research. Not just that, but Q1, skewed up by all the pre-tariff spending spree, was also marked lower to a 2.0% annualized growth rate from 2.2%.

For the Bank of Canada, this isn't a surprise, since it was broadly expecting a number like this, pointed out Rosenberg.

The trade front continues to wreak havoc on the numbers, as a huge 27% plunge in real exports was the primary culprit, and masked the 3.5% pickup in domestic demand (which was helped by a decent 4.5% recovery in consumer outlays after a nearly flat Q1, and a 6.3% gain in residential construction, which only recouped half of Q1 plunge in housing activity).

That said, real demand did contract by 0.9% in Q1, so an average of barely more than 1.0% annualized gain so far this year accurately depicts an economy that may not be in a technical recession, but is struggling, nonetheless.

In sharp contrast to the United States, where the Artificial Intelligence spending boom is alive and well, Canadian business investment sagged by a sharp 33% annualized to its lowest level since Q3 2020. This spells really bad news for the labor market because once companies start to trim capital expenditure, leaner hiring plans tend to follow.

This is at a time when the unemployment rate in Canada is far above its natural level, which is going to act as a dead-weight drag on wage growth. The chronic problem of ever-declining real GDP per capita is still with Canada.

The monthly data for June (-0.1% month over month versus the consensus of a 0.1% rise) and StatsCan's estimate for July (just a +0.1% recovery) show that there is no momentum in the Canadian economy as the country moves into Q3. The banking sector chief executive officers seem to like what they see in the local economy based on their post-results commentary this past week -- but they must be looking at a different set of data.

Q3 is looking quite flat for real GDP growth -- the BoC had been at 1.0% higher for the second half of 2025 -- after a 1.6% annualized shrinkage in Q2. This sure looks to Rosenberg like an economy that is residing right next door to a recession.

What the Bank of Canada does or doesn't do or say at the September policy meeting remains to be seen, but if Rosenberg were at the helm, it said it would have no problem in restarting the rate-relief campaign.

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