Canada’s economy shrank by 0.1 per cent on a monthly basis in April, Statistics Canada said on Friday, with the data agency’s advance estimate for May showing a similar decline in activity.

The manufacturing sector alone dipped 1.9 per cent — the steepest drop since April 2021, per Statistics Canada — driving a decline among goods-producing industries.

Transportation equipment manufacturing was hit hard, which the data agency attributed to uncertainty caused by the trade war in the auto industry as car manufacturers pulled back on production in response to U.S. President Donald Trump’s tariff on vehicle exports.

Wholesale trade also fell in April, particularly in sub-sectors related to autos and motor vehicle parts, as exports and imports of those products dropped.

The data agency is expecting economic growth to contract by 0.1 per cent again in May, signalling slower growth in the second quarter of the year as tariffs weigh on Canada’s economy.

Bank of Canada governor Tiff Macklem warned during the central bank’s last interest rate announcement that the impact of tariffs would be felt more acutely in the second quarter. First-quarter growth, while stronger than expected, was largely driven by pre-emptive activity as businesses stocked up on inventory ahead of Trump’s tariffs. 

The latest figures are “not that much of a surprise,” said Douglas Porter, chief economist at Bank of Montreal, in an interview with CBC News. “The economy was dealing with an incredible amount of trade uncertainty through the spring.

“If there was any surprise, it was that — initially — Statistics Canada told us that the economy actually managed to advance in April, which really ran against almost everyone’s expectations.”

There’s still some truth to the recession concerns that bubbled up earlier this year, he added. A technical recession — two consecutive declines in quarterly GDP — is possible, but Porter has doubts about a more serious downturn.

“When everything’s tallied up, we may end up with a couple quarters of small declines in GDP. I personally don’t think that quite rises to the level of what we economists would consider as a full-blown or garden-variety recession.”

April trading frenzy drove growth

Investment activity largely drove the country’s economic growth in April, with the finance and insurance sector growing 0.7 per cent — specifically financial investment services, funds and other financial vehicles. 

“The announcement of U.S. tariffs on April 2 heightened trade tensions and prospects of a global economic slowdown, leading to unusually high activity on Canadian equity markets in…