In October, the Canadian economy experienced a larger-than-anticipated 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 predicted a 0.2% decrease from September, attributing the slowdown to ongoing adjustments to U.S. trade policies.
Statistics Canada had previously reported a 0.2% growth in GDP for September, preventing a technical recession primarily due to a surge in defense spending. The latest decline in October was the most considerable since the 0.3% drop recorded in December 2022, with the goods sector decreasing by 0.7% and services contracting by 0.2%.
Looking ahead, preliminary data for November suggests a 0.1% GDP growth, indicating a potential recovery in the following month. Despite these numbers, the Bank of Canada appears unfazed by the figures. Governor Tiff Macklem anticipated weak GDP growth in the fourth quarter, with money markets forecasting a 25-basis-point rate hike likely in July 2026.
Various sectors showed declines in October, including a 1.5% drop in manufacturing, notably reflecting a 6.9% decline in machinery output. Wood product manufacturing fell by 7.3%, the largest decrease since April 2020, following the imposition of additional U.S. tariffs on October 14. The mining, quarrying, oil, and gas sector contracted by 0.6%, while the construction sector also saw a 0.4% decrease, with residential building construction dropping for the third consecutive month.
Service industries were impacted by nationwide work stoppages, including a Canada Post worker strike and a teachers’ strike in Alberta. BMO senior economist Robert Kavcic remarked on the soft momentum at the start of the fourth quarter, indicating that the Canadian economy needs to make efforts to avoid another negative outcome for the year.
The Bank of Canada maintained its key policy rate at 2.25% on December 10, with Macklem highlighting the economy’s resilience against U.S. tariffs and affirming the rate’s appropriateness to maintain inflation near the bank’s target of two percent. Following the release of GDP data on Friday morning, the Canadian dollar slightly increased to $1.3696 against the U.S. dollar.
