The Canadian economy was cruising smoothly until this year, but its landing is now looking choppy. National Bank of Canada (NBF) economists are warning investors that the economy slipped into excess supply in Q2. The Big Six bank sees this problem continuing into Q3 with job creation drying up, GDP contracting, and investment fleeing into other opportunities.
Canadian Job Losses Broad Across The Private Sector
Canadian payroll data reveals that job losses are broad, concentrated in the private sector, and alarming. The Survey of Employment, Payrolls, and Hours (SEPH) shows 32.9k jobs were lost in June, falling to just 0.2% annual growth. Losses were observed in 18 of 20 sectors, signaling weak demand—not just a shift in the type of employment.
The bank warns that private sector weakness is particularly concerning in 2025. Over the past six months, just 36% of 250 private sector industries recorded job growth. “… the lowest proportion since pandemic, thus highlighting the current weakness in the Canadian labour market,” notes Daren King, an economist with NBF.
Source: NBF.
Canada’s Economy Is Contracting, In “Excess Supply”
The job losses, while concerning, aren’t a surprise with the latest GDP data. The economy’s annualized growth showed a 1.6% contraction in Q2, nearly twice the expected pace. June GDP saw a downward revision from 0.1% growth to a 0.1% contraction. The advanced estimate for July (+0.1%) reveals tepid growth is expected to continue into the next official report.
“Overall, this week’s data does not change our view that the Canadian economy, already in excess supply, has experienced difficulties in the second quarter and will in the third,” he explains.
The bank sees the labour market’s erosion continuing to impact the third quarter.
Canadian Investment Confidence Eroding, Capital Flight Soars
A quick recovery is likely wishful thinking as the trade and investment data are sending long-term warning signals. The quarterly drop in exports (-26.8%) was much larger than the decline in imports (-5.1%) in Q2, further eroding the balance of trade. The export decline is amplified by foreign firms stockpiling inventories in prior quarters to get ahead of tariffs; this is still a massive drop.
“…trade made its largest negative contribution ever, with the exception of the temporary distortion caused by the pandemic. Tariff uncertainty has also shaken business confidence, prompting firms to significantly reduce their investments,” warns King.
He urges a trade deal sooner rather than later to help mitigate any further damage. However, the scale of damage will already have a long-term impact on any recovery. The bank didn’t get into it, but last week we noted that Canada is seeing record capital flight. This is a strong sign that investors, both domestic and foreign, see fewer opportunities available in Canada than abroad. It’s not easy to reverse investor sentiment on near term growth, as it’s more of a “show us it’s done” issue.
What they really mean is Western Canada expected to see job losses while getting the bill for massive government projects in Ontario.
That’s a silly over simplification. Check your bias.
It really is unfortunate that the over politicization of Canada means we can’t address the actual problems that are materializing because one side refuses to accept there’s any problems and the other side refuses to accept that anything is working.
I’ll bet the government will be hiring another 200,00 slackers to make the job numbers look good!
Nope, it is going the other way.
The federal public service’s total headcount declined by just under 10,000 jobs in 2024. A significant portion of these losses (approx.6,600) occurred at the Canada Revenue Agency accounting for roughly 68% of the total job reductions. Newspapers, putting out stories of growing frustration by ordinary tax payers because of cuts to call centre staff. More cuts to federal services are underway in 2025 of another 12,000 jobs.
Elbows up ,, 🙄
When economy shrinks because of trade imbalances. Canada government needs to speed up spending to create more jobs not just in construction but also in service sector. As construction only benefits a same corner of the economy for construction and engineering and building materials companies but that spending does not expand to otger sectors of the economy
Canada has been living off immigration for a long time, all the previous economic metrics are all been padded to look good. The only way forward is to open the valve for more immigrant with money to come to Canada.