How much the Canadian economy will contract through summer

The Canadian economy is expected to shrink for a second and third consecutive quarter in 2025, according to new data from the Canadian Federation of Independent Business (CFIB).

The organization’s latest Main Street Quarterly report, produced in partnership with AppEco, estimates that the economy declined by 0.8 per cent in Q2 and forecasts a further 0.8 per cent contraction in Q3. Inflation cooled to 1.8 per cent in the second quarter and is projected to rise slightly to 1.9 per cent in Q3.

Private investment, which already fell in Q1, is expected to drop 13.0 per cent in Q2 and another 6.9 per cent in Q3.

“While we forecast a contraction in the economy, at the same time certain indicators point out that it is normalizing in some ways,” said Simon Gaudreault, CFIB’s chief economist and vice-president of research. “Inflation remains stable which puts us in a favourable position to contemplate easier monetary policy for the second half of the year. However, with Canada seeing a 1.9 per cent inflation and unexpectedly adding jobs in June, the Bank of Canada may now decide to maintain its interest rate on July 30.”

The private sector job vacancy rate held steady at 2.8 per cent in Q2, representing 397,500 unfilled positions.

A special analysis on tariffs shows that supply chain disruptions are worsening, especially for wholesale and manufacturing firms. Many businesses now expect long-term impacts due to ongoing Canada-U.S. border delays and global trade tensions.

“The ‘one step forward, one step back’ trade situation is driving low business confidence, translating into paused or cancelled investments,” Gaudreault said. “As trade tensions drag on, more businesses will be slowly adjusting to tariff threats and finding alternatives.”

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