National Bank Revises Down Its "Already Conservative" Real GDP Growth Forecast For 2025 In Quebec

02:46 PM EDT, 09/24/2025 (MT Newswires) -- According to Daren King over at National Bank, we now have a complete picture of the first quarter during which the U.S. tariffs were imposed, and it's "far from reassuring".

King noted Quebec's real GDP contracted by the most since the 2008-2009 financial crisis (excluding Covid), and by more than the country as a whole in Q2. He said the main reason for this underperformance was the strongest ever negative contribution from international trade (tied with 1987 Q4), due to a sharp drop in exports, which were not accompanied, as elsewhere in the country, by a reduction in imports to cushion the blow. As a result, King added, the province's trade deficit reached its highest level ever.

The climate of uncertainty also undermined business confidence, King said, with investment in machinery and equipment also falling sharply. However, he added, both exports and these investments weighed less heavily on the downside than was observed across the country as a whole, and it was rather residential construction investment, and more specifically a 15.2% annualized quarterly decline in renovation, that accounted for the sharper contraction in the Quebec economy during the quarter.

On the upside, King said, inventories made a "strongly positive" contribution, as did household consumption. However, he added, the sustainability of this strength is questionable, given that it occurred despite a decline in employee compensation, pushing down the household savings rate. King noted this may be explained by the fact that Quebec was the province with the sharpest deterioration in its labor market during the quarter, according to the SEPH.

On a sectoral basis, King said a majority of industries contracted in Q2, but some were particularly hard hit, notably the utilities sector, which saw an annualized quarterly decline of 20.7%, and whose production level reached its lowest level since Q2 2024 due to low water levels in Hydro-Quebec's reservoirs. He added the manufacturing sector was also heavily affected with a quarterly decline of 11.6%, while production levels were the lowest since Q1 2017 (excluding Covid).

King said although the economy should regain strength in the months ahead, the strongly negative Q2 results prompt he and his colleagues at National Bank to revise down their already conservative real GDP growth forecast for 2025 from 0.9% to 0.7% (Canada: +1.2%).

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