In October, the Canadian economy experienced a larger-than-expected contraction of 0.3%, marking the most significant decline in nearly three years across both goods and services sectors, according to official data released on Tuesday. Analysts had anticipated a 0.2% decrease compared to September as the economy navigates U.S. trade policies.
Statistics Canada reported a 0.2% growth in GDP for September, helping Canada avoid a technical recession primarily due to increased defense spending. The recent decline in October, the largest since December 2022, saw the goods sector drop by 0.7% and services by 0.2%.
However, looking ahead to November, there are indications that the gross domestic product (GDP) could rebound by 0.1%, signaling a potential recovery. Bank of Canada Governor Tiff Macklem mentioned that weak GDP growth in the fourth quarter was expected, with money markets predicting a 25-basis-point hike, possibly in July 2026.
The manufacturing sector recorded a 1.5% decline, with machinery output plummeting by 6.9%. Wood product manufacturing also saw a significant 7.3% decrease attributed to new U.S. tariffs introduced on October 14. Mining, quarrying, and oil and gas activities contracted by 0.6%, while construction was down by 0.4%, especially in residential building construction for the third consecutive month.
Services industries were impacted by nationwide work stoppages, including a Canada Post strike and a teachers’ strike in Alberta. BMO senior economist Robert Kavcic highlighted the soft economic momentum at the start of the fourth quarter, indicating the need for continued efforts to prevent another negative economic performance by the year-end.
The Bank of Canada maintained its key policy rate at 2.25% on December 10, with Macklem emphasizing the economy’s resilience to U.S. tariffs and the rate’s role in maintaining inflation near the bank’s two percent target. Following the GDP release, the Canadian dollar slightly rose to $1.3696 against the U.S. dollar, or 73.01 U.S. cents, compared to C$1.3703, or 72.98 U.S. cents.
