Just as the United States-Mexico-Canada trade Agreement (USMCA) enters joint review (and probable limbo).
From Bloomberg, May 29:
Canada edged into a technical recession as weak business and government spending drove a slight contraction in the first quarter, pointing to persistent slack in the economy amid US trade tensions.
Real gross domestic product fell by 0.1% on an annualized basis during the first three months of the year, Statistics Canada reported on Friday. That follows a 1% contraction in the fourth quarter, a downward revision from a 0.6% decrease previously reported by the federal agency.
The surprise decline in the first quarter stands in contrast with forecasters’ expectations. Economists surveyed by Bloomberg were anticipating a 1.5% annualized increase in the first quarter, aligning with the Bank of Canada’s projection.
The last time Canada recorded two consecutive quarters of negative growth was in 2020 during the Covid-19 pandemic. Before that, it was in 2015 amid low oil prices.
The loonie fell to a session low after the report and was trading at C$1.3809 per US dollar as of 10:16 a.m. in Ottawa. Canadian government bond yields dipped to lows of the day, extending outperformance versus Treasuries, with the two-year benchmark down four basis points to 2.803%.
“There’s no sense sugar-coating this sour result, as the economy has clearly been struggling to grow since the start of the trade war, with headline growth also blunted by the rapid slowdown in population,” Doug Porter, chief economist at Bank of Montreal, said in a report to investors.
The weaker-than-expected GDP data coincides with a looser job market as well, painting a softer picture of the Canadian economy as US tariffs continue to squeeze some businesses.
“Overall, this should really throw a wet blanket on rate-hike talk, as the economy is in no condition to deal with higher rates,” Porter added.
The central bank has held its policy rate at 2.25% for four straight meetings, choosing to look through the short-term impact of higher oil prices on inflation while keeping an eye on softer economic conditions.
Economists in a Bloomberg survey had RATE SURVEY: BOC, Treasuries Forecasts in May 2026 (Table) the central bank to remain on hold for the rest of this year. Many said Friday’s data further reduces the likelihood of a hike, but traders in overnight interest rate swaps maintained bets on a 25 basis-point increase by December.
Read More: Bank of Canada Says Markets More Vulnerable to Sharp Correction
The “surprising” first quarter data means Canada has only seen growth in one of the last four quarters, pointed out Charles St-Arnaud, chief economist at Servus Credit Union....
....MUCH MORE
As Canada's Financial Post pointed out in February:
Posthaste: One sector of Canada's economy is in deep recession — and we can't even blame Trump
Manufacturing output has been declining for two decades. Here's why
....MUCH MORE
