Are consumers running out of room?

追加: 2026-05-31

[00:00:00]The Canadian economy edged into a technical recession in the first quarter with real GDP falling. Economists had been bracing for a 1 and 1/2% gain, so the surprise miss comes as US tariffs keep squeezing businesses. Joining us now to make sense of it all, Claire Fan, senior economist at RBC. Claire, thanks as always for joining us.

[00:00:21]>> Thanks for having me, Roger.

[00:00:22]>> Okay, you called for a Q1 growth to turn positive. I think everybody did.

[00:00:28]It's a big miss. What What happened? How did we miss by this much?

[00:00:33]>> Right. So, unlike sort of the the contraction that we saw in the fourth quarter of 2025, this particular Well, GDP really in real terms was pretty much unchanged.

[00:00:44]A lot of it where the softness unexpectedly came from weaker business structure spending. So, these are, for example, commercial buildings, railways, etc. and major renovation projects. And And on the government side as well, there was a fairly large sort of decline in their spending on weapon systems. So, defense spending as well, even though it's still historically pretty elevated.

[00:01:08]So, I think those two things were sort of the surprise factor on the downside that really dragged the so-called final domestic demand component down.

[00:01:16]To your point on the export side, we're still seeing impact negative impact really of US tariff really impacting auto exports to the United States, even though we've seen a huge imports as well, mostly just tied to precious metal to be offset by a huge run-up inventory.

[00:01:31]So, I think again, back to the consumer side of thing, which is really the last component on the expenditure side of things, we're still tracking a lot of resilience there.

[00:01:40]>> Okay, let's go back to the businesses for a second. The hesitation on spending, is that tariffs that's doing that or concerns about the economy?

[00:01:49]>> Yeah, I think it's that definitely, you know, just rising uncertainty to the economy. A lot of this where most of the it again is coming from factors that are outside of Canada because again what we're seeing repeatedly throughout 2025 is resilience within domestic spending.

[00:02:05]So some of these sort of declines in terms of business investment, although it has been weak pretty much for the last decade or so, has more to do with external factor. Number one is tariff like you mentioned. Number two is the fact that you know, a lot of geopolitical headwinds are just escalating right now or persisting much longer than what we had initially expected. Oil prices which are a key input cost when it comes to fuel cost to businesses, they're still quite elevated at this moment. So I think a lot of businesses are probably just holding off again in terms of not putting forward that investment dollar that they otherwise would have.

[00:02:41]>> All right. And now with the government the drop-off, is that a permanent thing or is it something that just didn't happen this quarter?

[00:02:49]>> I think the key thing here is to note that the defense spending number, especially on weapon system, is still historically very elevated. It's still as a share of GDP three times what it was historically. So it's a bit smaller, but that's just on a relative term comparing to pretty solid spending in 2025. So hardly anything, you know, a big change over there. It's still pretty resilient spending in defense.

[00:03:12]>> All right. And then and then the other one you mentioned, household spending actually rose 1 and 1/2%. But savings are down and people are it sounds like people are digging in and are they picking and choosing where they're spending?

[00:03:24]>> That's a great question and that is by far, you know, that's the key question moving forward as well. The longer oil prices and gasoline prices stay high, really what we're watching for is the component of household spending that account for half of the economy on the expenditure side. And so far, as far as April goes, which is the first sort of month into the second quarter, also sort of the second month out gasoline prices have persisted at pretty elevated levels. We're still tracking some signs of resilience of households mostly like he said dipping into their savings rate we did see see savings rate fall again to 3 and 1/2% in the first quarter and for some lower income households potentially utilizing personal sort of credit cards other debt to really spend through this initial period of higher gasoline prices but that is the key question mark going forward is just how much of this so called demand destruction is going to come through. So our estimate is that currently households on average in a month on average each Canadian household is spending about 75 to $100 more just on gasoline prices. So it's getting to a level of where it can become pretty uncomfortable for a lot of low lower income households. So far no significant signs of demand destruction. Even back in sort of the Q1 data which of course only cover part of sort of the elevated gasoline price period. We did see pretty solid spending again on services. We saw a pullback in auto spending and that's something discretionary so perhaps some weakness already seeping through but again that is sort of one thing that we will be watching very closely moving forward.

[00:05:00]>> All right and and now and technically this is a recession but it was like point I think it's point one and point one the two quarters when they take a second look any indicators that that might get revised up into either zero or into a positive?

[00:05:14]>> Right so this is the thing and the other thing is also that you know when we do look at GDP data from an economist perspective there is the expenditure side of thing that fell slightly like you mentioned but there is also sort of the income side of things which is the production base expenditure data so those two don't really reconcile all of the time but usually historically the gap is pretty small.

[00:05:36]It just so happens that the past two quarter we've seen pretty big gap in these two set of quarterly statistic. So all the sort of income side GDP actually grew on a quarterly basis. So that's also something to keep in mind, but definitely past trends in terms of GDP, we've seen consecutive upward revision in GDP components. Now, I can't really point to exactly which component over there that could be revised higher this time around, but certainly if that trend were to extend into sort of the first quarter statistic, um you know, it could definitely tip things into a small positive if anything. So, I think down to the bottom where you're getting at is will we characterize this really as recession for the Canadian economy? I think we're just not quite there yet. Again, some of the resilience that I pointed to you when it comes to consumer spending on the household side, as well as sort of pretty resilient again government spending still are all sort of signs that under lies some some amount of resilience in the Canadian economy despite the gloomy headline numbers.

[00:06:34]>> Okay, Claire, always appreciate your insight. We have to wrap it up there.

[00:06:37]Thanks very much for joining us.

[00:06:39]>> Thanks for having me.

[00:06:40]>> Claire Fan, senior economist at RBC.