A Canadian recession is unlikely, RBC says

Canada’s economy contracted modestly in April, with real GDP edging down 0.1% as U.S. trade disruptions led to a sharp decline in goods exports, RBC Senior Economist Claire Fan said in a June 27 report. The contraction was concentrated in a few key sectors, most notably manufacturing and wholesale trade, which both fell by 1.9% month over month, while most other areas of the economy continued to grow.

Sectors such as retail, finance, and public administration posted gains, helping to offset some of the export-driven weakness. RBC noted that the breadth of growth across industries suggests underlying resilience in domestic demand.

“Going forward, we continue to expect the pain from trade uncertainties will stay relatively contained, leaving the economy softer but not substantially worse off by the end of this year,” Fan said. “With most of U.S.-Canada trade exempted from tariffs via an exemption for USMCA-compliant trade, Canada continues to face one of the lowest tariffs among major U.S. trade partners.

“The broader trade headwind will still slow U.S. demand for imports, including for Canadian goods. But we expect Canadian domestic demand to broadly hold up, and the economy to not fall into a recession.”

Statistics Canada’s advance estimate for May points to another 0.1% decline, raising the possibility of flat or slightly negative GDP growth for the second quarter. However, RBC does not anticipate a recession, citing steady consumer spending and investment, even as U.S. demand for Canadian goods softens and tariff-related risks persist.

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