In October, the Canadian economy experienced a larger-than-anticipated contraction of 0.3%, marking the most substantial decline in nearly three years. This decrease was primarily driven by weaknesses in both the goods and services sectors, according to official data released on Tuesday. Analysts had predicted a 0.2% dip in growth compared to September, as the economy continues to adapt to U.S. trade measures.
The previous month, Canada saw a 0.2% increase in GDP for September, which helped the country avoid a technical recession, mainly due to a surge in defense spending. The decline in October was the most significant month-on-month drop since December 2022, with the goods sector falling by 0.7% and services contracting by 0.2%.
Looking ahead to November, there are indications that the gross domestic product will rebound slightly by 0.1%, allowing for some recovery. Despite these figures, the Bank of Canada is not expected to be overly concerned. Governor Tiff Macklem mentioned in a statement on December 10 that he anticipated weak GDP growth in the fourth quarter. Market projections suggest that the central bank’s next move will likely be a 25-basis-point hike, possibly in July 2026.
The manufacturing sector experienced a notable decline of 1.5%, with machinery output plummeting by 6.9%. Additionally, wood product manufacturing saw a significant drop of 7.3%, the largest since April 2020, following new U.S. tariffs implemented on October 14. The mining, quarrying, and oil and gas sector contracted by 0.6%, while the construction sector also decreased by 0.4%, with residential building construction declining for the third consecutive month, as reported by Statistics Canada.
Services-producing industries were impacted by countrywide work stoppages by Canada Post workers and a teachers’ strike in Alberta. BMO senior economist Robert Kavcic noted that the momentum at the start of the fourth quarter was relatively weak. While initial data for November suggests modest growth, Kavcic emphasized that efforts are needed to prevent another negative reading in the final quarter of the year, concluding what has been a turbulent year for Canadian growth.
The Bank of Canada maintained its key policy rate at 2.25% on December 10. Macklem highlighted the economy’s overall resilience to U.S. tariffs and stated that the current rate is appropriate to maintain inflation close to the bank’s target of two percent. Following the release of the GDP figures on Friday morning, the Canadian dollar strengthened slightly against the U.S. dollar, reaching $1.3696 or 73.01 U.S. cents from C$1.3703 or 72.98 U.S. cents.