Manufacturing slowdown, trade tensions weigh heavily on outlook
Canada’s economy contracted by 0.1% in April, raising concerns over a potential recession later this year, according to new data released by Statistics Canada. The decline follows a modest 0.2% expansion in March and marks a shift in momentum amid rising global economic uncertainty.
The weaker-than-expected performance was primarily driven by a sharp 1.9% decline in the manufacturing sector — the steepest drop since 2021. This downturn accounted for nearly all of April’s contraction, highlighting the sector’s vulnerability to ongoing global trade tensions, particularly the renewed pressure from U.S. tariffs on steel and aluminum.
“The manufacturing sector is under significant strain,” the report noted. “Tariff hikes have created fresh headwinds, compounding existing challenges in an already fragile industrial environment.”
In contrast, services-producing industries posted modest growth of 0.1%, buoyed by increased activity in public administration — a rise attributed to the lead-up to Canada’s federal election.
Most economists had anticipated flat growth or a slight uptick for April, making the negative figure a troubling surprise. Statistics Canada’s advance estimate for May also forecasts another 0.1% decline, suggesting that a second consecutive quarter of negative growth — the technical definition of a recession — is increasingly likely.
“This isn’t necessarily confirmation of a recession, but the risks are real and growing,” said David-Alexandre Brassard, Chief Economist at CPA Canada. “A mild recession scenario is becoming more plausible, especially if trade frictions persist.”
A recent Deloitte forecast echoes these concerns, predicting economic contraction in both Q2 and Q3 of 2025, and warning of rising unemployment levels in the months ahead. The consulting firm described the situation as an “uneven recession,” with certain sectors expected to feel the impact more acutely than others.
As policymakers and business leaders assess the road ahead, attention will turn to upcoming data and central bank responses, especially as inflationary pressures and global trade dynamics continue to shape the economic landscape.
