By Promit Mukherjee
OTTAWA (Reuters) -Canada’s economy contracted in April on a monthly basis, data showed on Friday, as sectors exposed to tariffs and uncertainty negated a boost from services.
Gross domestic product contracted by 0.1% month on month in April, Statistics Canada said, led by a 0.6% decline in goods-producing industries which contribute 25% to GDP.
While there was growth in finance and public administration, this was offset by a drop in sales in manufacturing and wholesale trade among others, Statscan said.
Analysts polled by Reuters had estimated GDP to be flat in April. The statistics agency revised the March growth figure to 0.2% from 0.1% reported previously.
An advanced estimate from Statscan showed that GDP for May is likely to contract again by 0.1%.
A back-to-back contraction in May, if confirmed, will not bode well for second quarter GDP, which many economists have warned will reveal the full impact of tariffs on Canada imposed by U.S. President Donald Trump.
The Bank of Canada has also warned that growth in the second quarter will be substantially weaker.
Surveys have shown that business investment has already been sluggish, job hiring has been muted, layoffs are picking up and there are signs that consumption is declining.
Manufacturing is one of the sectors that is heavily exposed to U.S. tariffs and contributes up to a tenth of GDP. The sector’s output contracted by 1.9% in April, its biggest decline since four years ago, when the pandemic was ravaging output and exports.
The transportation equipment manufacturing subsector dropped by 3.7% and was the largest contributor to the decline, Statscan said.
The wholesale trade sector contracted 1.9% in April, recording the largest monthly decline since June 2023, and was largely led by a hefty fall in motor vehicle and motor vehicle parts and accessories wholesaler-distributors.
The real estate and construction sectors continued their muted growth, each expanding by 0.1%. Real estate and rental and leasing account for the biggest contribution to GDP at 13%.
Economists had said that if growth in April was substantially weaker, and the next inflation data release is weak, it could boost the chances of an rate cut in July.
Money markets are betting that the odds of a rate cut at the central bank’s July 30 meeting are at around 35%.
The Canadian dollar pared some of its losses after the data and was trading down 0.06% at 1.3648 to the U.S. dollar, or 73.27 U.S. cents. Yields on two-year government bonds were up 0.6 basis points to 2.638%.
Among the sectors that added to growth was finance and insurance, which expanded by 0.7%, its largest monthly increase since August last year.
(Reporting by Promit Mukherjee. Editing by Dale Smith and Mark Potter)
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