Just a flesh wound

The folks from outside Atlanta stared at the embarrassingly-big Canadian flag nailed on the side of my house, and looked needy.

“We just want to apologize,” the woman said after approaching, “for our president. Please know most of us are not like that.”

It’s a typical tourist thing these days. Ashamed Americans. At least the ones who like coming through the eerily-empty border with their $1.40 dollars and spend time in a stable country. They know about the 51st-state thing. They know 47 has trash-talked us. They know about tariffs. And they’re sorry.

But wait. Is it over?

The latest numbers – out this morning – reflect the first full month of the orange guy’s attempt to start a global trade war and attack his country’s most faithful, lucrative, dependable partner. But despite the steel-and-aluminum hit (now 50%), plus the auto sector duties and other unfair American levies thrown against Canada, our economy has not disintegrated.

Canada’s GDP (gross domestic product = the economy) declined just a chin hair in April, down 0.1%. Manufacturing was off a couple of points, as expected. Services were up. Having five maple teams in the hockey playoffs helped the entertainment sector. So did a federal election. “Canadian GDP was essentially held to a standstill over the three spring months; that’s not great news, but also perhaps not as bad as initially feared,” says BeeMo Economics.

“The biggest drag by far was a steep 1.9% fall in manufacturing, including a 5.2% drop in the auto sector, as firms dealt with the initial wave of tariffs, as well as some further pullback after earlier tariff front-running,” the economists add. “Perhaps the surprise is that activity wasn’t even weaker.”

Indeed. The decline was more shallow than expected. And it will like be shorter than anticipated. As we know, TACO backed off on the crazy global reciprocal tariffs, pausing them until early July – when they may well be delayed again. Our new PM says a trade deal with the White House should be inked within the next month, which means stability, predictability and the ability of businesses to plan again.

Yes, we may have two or more quarters oof slightly-negative growth, which means a technical recession. But most people won’t notice it – and it may cause interest rates to decline a little faster than would otherwise be the case.

“An average growth rate of only around one per cent for the first half of the year as a whole, and weak momentum heading into the summer, suggests that slack in the economy is continuing to build and that further interest rate cuts from the Bank of Canada will be needed to support a recovery later in the year,” says CIBC economist Andrew Grantham.

The advent of a mini-recession, adds BMO’s Doug Porter, “is certainly not good news, but also a less dire outcome than expected a few months back at the height of the tariff drama.”

And as for rates: “We suspect that the underlying softness in growth and employment will eventually pave the way for additional rate relief.” Not next month, however – when the Bank of Canada is expected to stay on pause once again – but in September, when the US Fed is also likely to trim the cost of money for the first time in months.

What are the implications?

Mortgages stay in the 4% range all summer. Real estate continues to decline in value as supply overwhelms demand. The unemployment rate ticks higher, adding to the negative sentiment around housing. The construction industry is decimated. Targets for new home building are unmet. Buyers stay on the sidelines, convinced a market collapse is nigh.

Little do they know.

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Source: https://www.greaterfool.ca/2025/06/27/just-a-flesh-wound/