After months of resilience, Canada’s economy may be entering a more fragile phase. As of early July, concerns are mounting that the country could be nearing a technical recession. The latest GDP numbers from April and May 2025 show back-to-back contractions, and early signs from June suggest little relief in sight.

With the Bank of Canada’s (BoC) July 30 rate decision approaching, all eyes are on whether these slowdowns will push the central bank to cut rates for the first time this year.

📉 April GDP Fell Short of Expectations

According to Statistics Canada, the economy contracted by 0.1% in April, falling short of the agency’s projection for 0.1% growth and the market consensus of flat output. The drop came as 8 of 20 major sectors declined, led by a 0.6% fall in goods-producing industries.

Interestingly, March’s GDP was revised upward, from 0.1% to 0.2%, which helps balance the two-month average. Still, the trajectory points to mounting economic pressure, driven by global trade tensions and tight monetary conditions.

🏗️ Goods Sector Weakens, Services Offer Modest Support

The goods-producing sector continues to struggle under the weight of tariffs and supply chain challenges. Manufacturing saw a sharp 1.8% monthly decline, while wholesale trade dipped 0.1%.

In contrast, services grew 0.1%, led by Public Administration (+0.6%) and Finance & Insurance (+0.5%). Surprisingly, public sector growth held steady despite federal hiring freezes—likely bolstered by provincial and municipal hiring.

📅 May Also Contracts, June Shows No Clear Turnaround

StatCan’s advance estimate for May 2025 shows another 0.1% contraction, confirming a second straight month of decline. This raises red flags, as two consecutive months of GDP decline typically meet the definition of a technical recession.

What about June?

While official numbers won’t be released until later this month, early indicators—including business activity surveys and sector performance—suggest continued stagnation. Sectors like manufacturing and construction remain subdued, and no strong rebound signals have emerged.

💸 Will the Bank of Canada Cut Rates in July?

The big question now: Will the BoC act?

Economists are divided:

• National Bank Financial (NBF) sees the economic slowdown as evidence that monetary policy is too tight, especially as inflation cools and unemployment rises. NBF economist Daryl King expects the BoC to cut rates on July 30 to support flagging growth.

“In this context of economic slowdown… we believe a rate cut by the Bank of Canada in July is needed,” King said.

• RBC Economics, however, believes the fundamentals remain stable. RBC economist Claire Fan argues that domestic demand is still strong, and unless there’s a material downturn in inflation or consumption, the BoC is likely to hold rates steady.

🔎 What to Watch This Month

Key dates to monitor:

• Mid-July: Canada’s CPI (inflation) report for June
• July 30: Bank of Canada interest rate decision

If inflation continues to ease and GDP data confirms weakness in June, a rate cut becomes more likely. But if inflation stays sticky or domestic demand holds up, the BoC may choose to wait.