U.S. trade war has pushed Canada into ‘recession territory.’ Here’s what that means

Statistics Canada is set to release new numbers that will give a better understanding of how the country is faring in the face of U.S. tariffs.

Canada’s gross domestic product – the value of all goods produced in Canada – took a hit in recent months, Statistics Canada revealed on Friday. Economists say the data is worse than expected, and largely a result of the trade war with the U.S.

Experts use the GDP to measure the size of Canada’s economy. On an annualized basis, it declined 1.6 per cent, and was down 0.4 per cent from the last quarter, which was higher because exporters rushed to get their product out before U.S. tariffs kicked in.

Business investments also fell. Machinery and equipment waned the most at -9.4 per cent in the second quarter.

“This is not a good picture for Canada,” said Pedro Antunes, the Conference Board of Canada’s chief economist, in an interview with CTVNews.ca.

“Business confidence is down at rock-bottom level still, and this just doesn’t bode well for that private investment in that productive capacity,” he continued. “That’s so important in terms of driving our future production, our future employment, our future growth. And of course, the same thing is happening with consumers.”

Canada in ‘recession territory’: economist

A so-called “recession” refers to a period of time in which a country’s economy is shrinking. Economists typically say an economy is in recession after the GDP shrinks for two consecutive three-month periods.

A recession may bring an increase in layoffs and unemployment, as well as reduced economic activity.

Canada saw a bump in GDP last quarter, so while we’re not technically in a recession yet, Antunes said we’re now in “recession territory.”

Meanwhile, Canada is in negotiations with the U.S. to end the tariff war and forge a path ahead on trade. The free trade agreement with the U.S. and Mexico, known in Canada as CUSMA, is up for review next year, and the uncertainty surrounding those talks have cooled investment in Canada, Antunes said.

With Canada having a smaller economy that’s reliant on the U.S. as its primary export destination, Antunes says “we just don’t have as much firepower.”

“We’re just taking it in the chin right now. It’s really, really tough on Canada’s economy,” he said, later adding that “We’re talking an awful lot about kind of rebuilding and reinvesting in Canada. I think these are all terrific things,” he added.

Saving less? You’re not alone

The household saving rate fell to five per cent in the second quarter, down from six per cent in the first, according to Statistics Canada’s report.

Household consumption expenditures rose 1.2 per cent, while incomes were “relatively weak,” the department said.

The Bank of Canada held its key interest rate steady at 2.75 per cent this quarter, resulting in a 0.1 per cent increase in interest payments for overall households.

But this data from Statistics Canada could push the central bank to lower its lending rate, according to Andrew DiCapua, principal economist the Canadian Chamber of Commerce.

“The household savings rate declined … We saw weaker disposable income growth, and spending was higher than income growth,” he recounted in an interview with CTV News. “So, what that tells me is, on average, the purchasing power for average Canadians is declining.”

“We need to be a little bit more cautious … and that caution, of course, feeds into the economy, right?” he continued. “We’re expecting this data to kind of convince the Bank of Canada that that conditions are right for another rate cut.”