What’s Going on in the Canadian Economy Right Now?
Canada’s main stock index, the S&P/TSX Composite, climbed above 27,000 for the first time, driven by gains in industrials and tech sectors (Johnson, 2025). This milestone reflects investor confidence and global market momentum. However, the stock market's performance masks growing fragility in Canada’s underlying economic indicators, underscoring a widening gap between financial markets and real economic conditions.
Canada's GDP contracted by 0.1% in both April and May, according to Statistics Canada's estimates (Benchetrit, 2025). A sharp 1.9% drop in manufacturing, led by transportation equipment, played a major role in this decline. Trade uncertainty, particularly stemming from escalating tariff tensions with the United States, is prompting Canadian manufacturers and exporters to pull back, raising concerns about a broader slowdown in the second quarter.
The U.S., Canada’s largest trading partner, has introduced a range of new tariffs and trade measures under the Trump administration. While not directly cited from the withdrawn article, this ongoing volatility has been referenced by analysts and Canadian officials alike. U.S. policy decisions, particularly on tariffs, heavily influence Canadian exports, business confidence, and investment activity. As uncertainty lingers, the Bank of Canada has warned that trade disruptions may dampen growth through delayed capital spending and reduced market access (Bank of Canada, 2025).
In June, Canada added 83,000 jobs, surprising economists who had expected minimal movement (CBC News, 2025). While this marks the first major employment increase since January, most jobs were part-time, and student unemployment remains elevated at 17.4%. These highlights continued softness in labour market quality, despite an improving headline employment rate of 6.6%.
U.S. markets have been buoyed by optimism over potential interest rate cuts by the Federal Reserve, which investors believe may arrive sooner than expected (Goldman Sachs, 2025). For Canada, this has implications for the Canadian dollar, capital flows, and Bank of Canada decision-making. A divergence in rate policy between the two nations could strain Canada’s export competitiveness or push the central bank toward its own rate adjustments to maintain monetary stability.
The Bank of Canada reports that trade-related policy instability is causing many businesses to delay or scale back investment decisions (Bank of Canada, 2025). This slowdown in capital expenditure, particularly in machinery and equipment, limits future growth capacity and job creation, and reflects the cautious sentiment prevailing across industries.
While equity markets in both Canada and the U.S. have continued to rise, largely fueled by optimism about rate cuts and AI-driven innovation, the fundamentals tell a more restrained story. Canada's flatlining GDP and fragile employment gains underscore the caution needed when interpreting stock market highs as signs of broad-based recovery.
The Canadian economy is showing resilience in pockets, but remains exposed to global volatility, especially from its southern neighbour. Despite strong market optics, the path ahead will depend on managing trade tensions, restoring business confidence, and navigating any future interest rate moves. Investors and policymakers alike should remain cautious as Canada works through these persistent headwinds.
What This Means for Your Financial Plan
A little preparation and consistency can go a long way in keeping your finances protected. This month, focus on peace of mind, automate a savings transfer, cancel that forgotten subscription, or spend a few minutes checking your progress toward a financial milestone. It doesn’t have to be big just better than ignoring it.
You can’t control the headlines, but you can take small, steady steps that build long-term confidence.
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Reach out to us today at jonathan@alpenia.ca to start or continue building your financial future with confidence and clarity.
References
Bank of Canada. (2025, July 17). How economic uncertainty disrupts investment. https://www.bankofcanada.ca/2025/07/how-economic-uncertainty-disrupts-investment/
Benchetrit, J. (2025, June 27). Canada’s GDP shrank in April, with hefty decline in manufacturing. CBC News. https://www.cbc.ca/news/business/canada-gdp-april-2025-1.7572428
CBC News. (2025, July 11). Canada added 83,000 jobs in June, sending unemployment down slightly. https://www.cbc.ca/news/business/job-numbers-june-1.7582664
Faller, M., Cuevas, F., & Harlap, D. (2025, July 21). Wall of worry? markets are climbing it anyway. J.P. Morgan Private Bank . https://privatebank.jpmorgan.com/eur/en/insights/markets-and-investing/tmt/wall-of-worry-markets-are-climbing-it-anyway
Goldman Sachs. (2025, July 11). The S&P 500 is projected to rally more than expected. https://www.goldmansachs.com/insights/articles/s-and-p-500-projected-to-rally-more-than-expected
Johnson, D. (2025, July 14). S&P/TSX composite hits new highs, U.S. markets up amid trade uncertainty. Business in Vancouver. https://www.biv.com/news/sptsx-composite-hits-new-highs-us-markets-up-amid-trade-uncertainty-10940014
