Consumer spending in Canada is showing signs of strain, particularly within the auto sector. A recent Financial Post report highlights that rising auto prices and tariff-driven uncertainty have dampened consumer appetite, with motor vehicles and parts posting one of the steepest declines in retail spending.
Eroding Consumer Momentum
In May 2025, Statistics Canada reported a 1.1% drop in overall retail sales, with motor vehicles and parts down by 3.6%, and new car sales specifically falling by 4.6%. Economists attribute this downturn to trade friction and weaker domestic demand.
While the housing sector remained subdued, an interim rebound in June (+1.6%) offered limited respite. Nonetheless, consumer caution appears set to persist as inflation remains above target and borrowing costs stay elevated.
Auto Sales Under Pressure from Tariffs
The auto industry faces headwinds due to the recent 25% U.S. import tariff on vehicles and parts. The advisory firm Telemetry projects that auto sales across the U.S. and Canada may fall by 1.8 million units in 2025, if current trade tensions continue. Even though Canadian-made vehicles with substantial U.S. parts content may qualify for reduced tariffs (~12.5%), sales disruptions are expected to persist.
Initial recovery in 2024, when Canadian auto sales rebounded to 1.82 million units, up 8% year-on-year and one of the highest totals in five years, now appears at risk of faltering as consumers pull back and affordability erodes amid high prices and interest costs.
Broader Economic and Sectoral Outlook
Consumer spending growth is expected to moderate markedly in 2025. According to Fitch Ratings, annual aggregate spending may slow to just 1.1%, down from approximately 1.8% in 2024. While population growth and pent-up demand support a degree of resilience, elevated household debt and inflation continue to weigh heavily on discretionary purchases.
Tariffs on key exports, including steel, aluminum, and autos are also disrupting supply chains and increasing costs across the broader economy. The OECD echoes these risks, noting that trade conflict remains one of the primary headwinds facing Canada’s otherwise robust macroeconomic framework.
Implications for CCCH and Hungarian Stakeholders
From a CCCH vantage point, the unfolding slowdown in Canadian auto spending signals both caution and opportunity. For Hungarian businesses engaged in automotive parts, financing, or trade-related sectors, understanding these dynamics is critical.
With consumer demand softening, firms partnering with Canadian automakers or suppliers should monitor tariff developments closely and anticipate potential order reductions. Conversely, Hungarian firms offering competitive parts, low-cost alternatives, or financial solutions may find openings as Canadian automakers seek to mitigate mounting costs and support affordability.
Additionally, the EV sector could offer new collaborative pathways, especially given Canada’s EV mandates and evolving regulatory dynamics. Hungarian technologies or partnerships aligned with this transition may find strategic leverage.
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Written for the Canadian Chamber of Commerce in Hungary News Section as part of our ongoing coverage of developments affecting Canadian trade, economy and international partnerships, July 2025
