08:49 AM EDT, 07/31/2025 (MT Newswires) -- The Canadian economy cooled in Q2 as United States tariffs started to bite, although advance gross domestic product data released on Thursday suggest that the economy heated up slightly again in June, said CIBC.

The 0.1% month-over-month contraction in activity for May GDP was in line with the advance estimate and the consensus forecast. Mining, oil & natural gas, retail and public administration were the main drags on activity, although the latter was simply a reversal of an increase seen in the prior month linked to the Canadian federal election.

Manufacturing activity increased by 0.7%, although that offset only part of the 1.8% decline seen in the prior month and was linked in part to inventory accumulation. Manufacturing activity remained 1.1% below its March level - the month some US tariffs started. The advance estimate for June pointed to a slight 0.1% increase in activity, driven by retail and wholesale trade.

For Q2 as a whole, Thursday's data points to essentially no change in GDP compared to the prior quarter. However, that stall isn't as weak as the 1.5% contraction predicted by the Bank of Canada in Wednesday's Monetary Policy Report, although those forecasts are based on expenditure data, which can -- and do -- differ from the industry figures released on Wednesday, stated the bank.

Indeed, for Q1 the expenditure data were stronger than the industry figures, so it's quite possible that investors may see the reverse of that in Q2, with some of this divergence possibly due to the large swings in trade seen during the first half of this year that may be hard to fully pick up in the industry data.

Because of this, CIBC will need to wait and see next month's quarterly GDP release to know whether the economy is really outperforming the BoC's expectations, and the implications that may have for the probability of future interest rate cuts.