Despite weaker GDP numbers and the fallout from Donald Trump’s tariffs, the economy is proving more resilient than the headlines suggest.
A Mixed Economic Picture
Yes, the second quarter looked rough on paper. GDP shrank by 1.6%, exports plunged nearly 10%, and manufacturing slowed in three of the last four months. The tariff war with the U.S. has clearly taken a bite out of Canada’s export sector.
But peel back the layers, and the story isn’t all doom and gloom. Consumer spending surged 4.5% and housing investment jumped 6.3% in Q2 — two major signals that Canadians are still spending and investing with confidence. Home sales have been rising for three straight months, while housing starts are at their strongest levels in years, helping to ease supply shortages.
Why a Big Rate Cut Isn’t Coming
The Bank of Canada’s key rate currently sits at 2.75%, and while some modest relief could come on September 17, don’t expect the half-point (or bigger) cut many borrowers are praying for.
Why? Because domestic demand is running hot. From shopping malls to real estate, the Canadian economy is still firing. Cutting rates too aggressively risks reigniting inflation and creating new housing bubbles — exactly what policymakers want to avoid.
RBC Economics and Scotiabank both agree that tariff damage may have already peaked and that July’s job losses reflect the worst being behind us. In fact, Scotiabank notes Canada’s economy was much stronger than the headline GDP reading suggests, with trade distortions making things look worse than they are.
The U.S. Factor
Where things get tricky is south of the border. U.S. growth has slowed, and inflation remains stubbornly high at 2.7% (compared with 1.7% in Canada). The U.S. Federal Reserve is keeping rates higher, putting pressure on the BoC to stay cautious.
If Trump pushes the Fed into rate cuts, it could spark short-term spending in the U.S. but at the cost of credibility and more inflationary pressure. For Canada, that means navigating a tightrope between keeping our dollar stable and avoiding imported inflation.
What It Means for Canadians
For borrowers, the takeaway is clear: don’t bank on deep interest rate cuts this fall. Any moves will likely be modest. But there’s good news: Canada’s domestic economy remains strong, housing activity is rebounding, and the groundwork is being laid for more sustainable growth once the global trade dust settles.
At Lendworth, we’re watching these trends closely. Whether you’re an investor seeking steady returns or a borrower navigating today’s higher-rate environment, having the right financial partner makes all the difference.
👉 Explore Lendworth’s mortgage solutions and investment opportunities today.