Recent developments in the Canadian economy: Fall 2025

After supporting economic growth as trade tensions escalated in the first quarter, exports scaled back in the second quarter as gross domestic product fell 0.4%, the largest quarterly contraction in nine years outside of the pandemic period. Imports and business outlays on machinery and equipment also pulled back in the second quarter as U.S. tariffs and uncertainty weighed on economic activity. Increases in business inventories and household spending partly mitigated the declines in trade and investment. Much of the decrease in economy-wide output in the second quarter reflected lower activity among manufacturers and wholesalers as U.S. tariffs on Canadian steel and aluminum and autos were in effect. Employment growth stalled in the first half of 2025 as uncertainty weighed on hiring intentions while layoff rates remained similar to levels reported in 2024. Nationally, there was no net employment growth from January to August 2025 and no net increase in payroll employment from January to June 2025. The unemployment rate increased to 7.1% in August and has risen 0.5 percentage points since the start of the year.