Momentum fades

Two consecutive periods of quarterly growth saw the Canadian economy seemingly press ahead amidst growing geopolitical uncertainty. However, the 0.5 percent quarterly increase in real gross domestic product (GDP) during Q1 2025 possibly painted a misleading picture. Much of those gains reflect inventory building in the wake of US tariffs and April 2025 GDP data appears to have reversed that increase.

With it still being early days in terms of data availability, headline GDP figures may not be the best barometer of economic health. Looking beyond the GDP print, unemployment rates continued to grow and posted 7.0 percent in May 2025. Vacancy rates have also been reduced, indicating that opportunities are increasingly difficult to find for those looking to secure work. Both metrics present a less optimistic view of the economy.

Nevertheless, lower interest rates, 2.75 percent as of June 2025, should help embolden investors, free up disposable income and encourage growth as credit conditions improve. Yet, against a backdrop of persistent volatility, lenders may well lower risk appetites, and loan availability could reduce if additional checks increase.

Softening consumer price inflation could also bolster the market, with price growth notching an increase of 1.7 percent on the year in May 2025. The bulk of this disinflation comes from energy, although oil prices have started to rally due to increased hostility across the Middle East. With shipping lanes being placed under increased duress, risk premiums are rising and price pressure is mounting. Oil prices, however, are likely to undulate as geopolitical tensions persist.