July 2025 Market Update from Canada Life Investment Management

New tariff date set for August 1

In early July, U.S. President, Donald Trump announced that higher reciprocal tariffs would take effect on Aug. 1 (later changed to Aug. 7 for most countries, excluding Canada) unless trade agreements were reached. This resulted in a flurry of negotiations throughout the month, with several countries racing to secure deals. The U.S. finalized agreements with both Japan and the European Union. Meanwhile, Canada continued its discussions with the U.S., but couldn’t strike a deal by the end of July.

Major central banks stay on the sidelines

Major central banks, including the Bank of Canada and the U.S. Federal Reserve, kept interest rates unchanged. This cautious stance reflects a “wait-and-watch” approach as policymakers assess the effects of ongoing trade tensions and tariffs. The European Central Bank, the People’s Bank of China, and the Bank of Japan also chose to hold rates steady while not ruling out more rate cuts as trade tensions continue to play out.

Trade tensions hinder Canada’s trade activity

Canada’s trade activity remained under pressure in May, posting a significant trade deficit of $5.9 billion. While overall exports rose, this was driven by increased shipments to countries outside the U.S. Exports to the U.S., Canada’s largest trading partner, declined for a second consecutive month. Statistics Canada says that Canada’s economy shrank by 0.1% in May.

China’s economy grew more than expected

China’s economy grew by 5.2% year-over-year in the second quarter of 2025, exceeding expectations. Robust industrial activity and supportive government and central bank measures aimed at stimulating growth fuelled this growth. However, the pace of growth slowed from 5.4% in the first quarter due to subdued domestic demand and persistent challenges in the property market. The country failed to reach a trade deal with the U.S. even as the Aug. 12 deadline for the same closes in.