Real gross domestic product (GDP) declined 0.4% in the second quarter of 2025, following a 0.5% gain in the first quarter. The contraction in the second quarter was driven by significant declines in the export of goods, as well as decreased business investment in machinery and equipment. These declines were tempered by faster accumulations of business inventories, higher household spending and lower imports of goods, according to a report released Friday by Statistics Canada.
On a per capita basis, real GDP was down 0.4% in the second quarter, after an increase of 0.4% in the previous quarter. Final domestic demand, which represents total final consumption expenditures and investment in fixed capital, was up 0.9% in the second quarter of 2025, following a decline of 0.2% in the first quarter. Increased household and government spending led the rise in final domestic demand in the second quarter, said the federal agency.
“Exports declined 7.5% in the second quarter of 2025 after increasing 1.4% in the first quarter. As a consequence of United States-imposed tariffs, international exports of passenger cars and light trucks plummeted 24.7% in the second quarter. Exports of industrial machinery, equipment and parts (-18.5%) and travel services (-11.1%) also declined,” noted Statistics Canada.
“Amid the counter-tariff response by the Canadian government for imports from the United States, international imports declined 1.3% in the second quarter, after rising 0.9% in the previous quarter. Lower imports of passenger vehicles (-9.2%) and travel services (-8.5%; Canadians travelling abroad) were moderated by higher imports of intermediate metal products (+35.8%), more specifically, by unwrought gold, silver, and platinum group metals.
“Export (-3.3%) and import (-2.3%) prices fell in the second quarter, as businesses likely absorbed some of the additional costs of tariffs by lowering prices. Given the larger decline in export prices, the terms of trade—the ratio of the price of exports to the price of imports—fell 1.1%.”
“As expected, the economy contracted in the second quarter, as exports were walloped by the one-two punch of weaker U.S. demand and the unwind of a tariff-front running induced surge in Q1. Final domestic demand held up much better than overall GDP (+3.5% q/q), buoyed by a surprisingly strong, broad-based surge in consumer spending and one-time equipment import for an offshore oil field in Newfoundland and Labrador. Moving forward, consumption growth could ease from its hefty second quarter pace, reflecting the cooler jobs market. Note that employee compensation advanced at its slowest pace since the pandemic in the second quarter,” said Rishi Sondhi, Economist with TD Economics.
“Today’s GDP data fell in almost exactly in line with what the Bank of Canada expected in their latest forecast. However, domestic demand looks to have surprised on the upside. On the margin, this could enhance the argument for the Bank to stand pat on rates at their September 17th meeting. However, policymakers still have one more jobs and inflation report to digest before that time. The contraction in overall GDP also implies that slack built in the economy in Q2, and even with a better performance in Q3 likely on tap, the economy probably remains in excess supply. This points to further downward pressure on inflation and could pave the way for more rate cuts this year (see our updated forecast), especially with a policy rate only at the mid-point of what the Bank considers neutral for the economy. For their part, markets are pricing in a 55% chance of a cut in September, although one taking place by year’s end is fully priced in.”
Also on Friday, Statistics Canada released another report indicating total sales in the food services and drinking places subsector increased 0.3% in June to $8.5 billion.
Non-seasonally adjusted prices for food purchased from restaurants were up 3.2% in June when compared with June 2024. Unadjusted prices for alcoholic beverages served in licensed establishments increased 3.3% over the same period, said the federal agency.
“In June, the largest increase in sales came from limited-service eating places (+0.5%). Higher sales were also observed at full-service restaurants and (+0.1%) and drinking places (+0.3%). Sales at special food services (-0.3%) declined,” added Statistics Canada.
“In June, seven provinces saw increased sales. Alberta (+1.5%) posted the largest increase in dollar terms, followed by British Columbia (+0.3%). Nova Scotia (+1.5%) and Manitoba (+1.3%) also showed strong growth. Quebec (-0.3%) saw the largest decrease in dollar terms.”
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