Canadian exports plunge and business investment stalls as firms brace for a challenging year-end
Exports from Canada to the United States plunged 7.5 percent in the second quarter of 2025, the sharpest quarterly decline since 2009 outside the pandemic period, according to Statistics Canada.
This contraction, following the implementation of US tariffs on Canadian steel, aluminum, automobiles, and other goods not compliant with the Canada–United States–Mexico Agreement, contributed to a 0.4 percent decline in real gross domestic product after six consecutive quarters of growth.
Business sentiment and investment plans have also been affected.
The Canadian Federation of Independent Business (CFIB), in its Main Street Quarterly report, estimates that the Canadian economy grew by 0.8 percent in the third quarter of 2025 and forecasts continued slow growth of 0.2 percent in the fourth quarter.
CFIB notes that private investment is expected to decline by 3.7 percent in the third quarter and contract a further 4.5 percent in the fourth quarter, reflecting ongoing uncertainty and subdued business confidence.
Labour market conditions have cooled as well.
Statistics Canada reports no net employment growth from February to August 2025, with the unemployment rate rising to 7.1 percent in August, the highest since May 2016 outside the pandemic period.
The CFIB highlights that the national private sector job vacancy rate remained steady at 2.8 percent in the third quarter, representing 391,100 unfilled positions.
Retail sales and consumer spending have offered some resilience.
According to CFIB, retail sales declined by 0.2 percent in the third quarter but are forecast to grow by 1.8 percent in the fourth quarter, which remains below historical averages.
Statistics Canada notes that retail volumes have expanded for five consecutive quarters, partly offsetting declines in trade and business investment.
Inflation has remained relatively stable.
The CFIB expects Consumer Price Index (CPI) inflation to remain steady for the rest of the year, while Statistics Canada reports headline inflation below 2 percent from April to August 2025, largely due to the elimination of the consumer carbon levy.
Both organizations highlight the ongoing uncertainty for Canadian businesses.
The CFIB’s chief economist, Simon Gaudreault, states that “considerable economic uncertainty remains, along with various headaches for Canadian businesses,” and that these conditions explain the weak outlook for GDP, retail sales, labour market, and investment for the second half of 2025.
Despite these signals, small business owners are hoping for a stronger finish to the year, supported by the possibility of positive signals in the upcoming federal budget and strong holiday sales.
As Canadian businesses and investors navigate these shifting economic conditions, the evolving trade environment and policy responses will remain key factors shaping the outlook for the remainder of 2025.
