Renewed Confidence Amid Receding Trade Risks

The Index of Consumer Confidence rose 4.6 points in June to 57.5 (2014 = 100). The survey dates were June 13 to June 22.

Insights

Despite economic uncertainty, Canadian households demonstrated greater financial resilience in early 2025. Household net worth increased 0.8 per cent to $17.6 trillion, the sixth consecutive quarter of expansion. This gain was supported by a 0.9 per cent increase in financial assets, which reached a record 10.9 trillion. Non-financial assets also rose, up for a second consecutive quarter to $9.8 trillion, largely driven by a 0.6 per cent uptick in residential real estate valuations.

Canadian households moderated their pace of borrowing amid persistent economic uncertainty, however. Credit market borrowing slowed to $34.5 billion, reflecting weaker demand for both mortgage and non-mortgage debt. While mortgages continued to dominate new borrowing, demand eased to $27.3 billion, down 11.1 per cent compared to the previous quarter. Non-mortgage borrowing, including consumer credit, also declined, pointing to still cautious household spending behavior.

Retail sales are showing signs of moderation as economic headwinds begin to temper consumer demand. Following a 1.2 per cent increase in the first quarter of 2025, retail sales appear to be losing steam as the second quarter begins. April saw only modest growth of 0.3 per cent, and preliminary indicators for May suggest a notable pullback of approximately 1.1 per cent. This emerging weakness reflects a combination of cyclical pressures, including subdued consumer confidence and some ongoing economic uncertainty, as well as structural factors such as demographic shifts. Together, these dynamics are expected to weigh on retail performance moving ahead.

Headline inflation held steady at 1.7 points in May, unchanged from April, as lower energy prices continued to offset broader cost pressures. The decline in energy costs, supported in part by the removal of the federal carbon tax, helped contain price growth in food and services. Shelter inflation eased further, however, rising 3.0 points year-over-year, the slowest pace since March 2021. This reflects moderate increases in both rent and mortgage interest costs. Core inflation remained stable as well, indicating that underlying pressures, including those related to recent trade tensions, have yet to materialize in consumer prices.

Canada dodged the tariff cannonball, but a few targeted arrows still threaten select sectors. Shift in U.S. trade policy from broad-based tariffs to more targeted levies has reduced immediate pressure on Canadian exporters. However, key sectors, namely aluminum, steel, and non-CUSMA-compliant vehicles and parts, remain vulnerable to ongoing trade frictions. Given the U.S. market’s central role in Canada’s export profile, exposure to policy risk persists. In response, the federal government is set to implement a package of countermeasures by the end of June, including revised tariffs, procurement restrictions, and import quotas aimed at stabilizing domestic markets. While these interventions may soften short-term disruptions, they offer limited insulation from Canada’s structural dependence on U.S. trade flows.

The Canadian economy is expected to shrink, but less severely than previously forecast. Adjustments to tariff rates and coverage are expected to alter the impact on the Canadian economy, prompting a revision to our outlook. We now project real GDP to contract by 0.1 per cent in the second quarter, with annual growth slowing to 1.5 per cent for this year. Employment is also forecast to decline for the near term, shedding approximately 23,500 jobs in the second quarter. This will result in an annual gain of around 1.3 per cent in 2025, the slowest pace of job growth in nearly a decade outside of the COVID-19 period.