The Canadian economy experienced a larger-than-anticipated 0.3% contraction in October, marking the most significant decline in nearly three years. Both the goods and services sectors showed weakness according to official data released on Tuesday. Economists had predicted a 0.2% decrease from September as the economy continued to adapt to U.S. trade policies.
In September, Statistics Canada reported a 0.2% increase in GDP, preventing Canada from entering a technical recession primarily due to a surge in defense expenditures. October saw a 0.7% decline in the goods sector and a 0.2% contraction in services. However, a preview of November’s data suggests a 0.1% GDP growth for that month, hinting at some recovery.
The Bank of Canada is not overly worried about these figures. Governor Tiff Macklem stated on December 10 that fourth-quarter GDP growth is expected to be sluggish. Market expectations indicate a 25-basis-point interest rate hike, likely to occur in July 2026.
The manufacturing sector decreased by 1.5%, with machinery output plummeting by 6.9%. Wood product manufacturing saw a 7.3% decline, the sharpest drop since April 2020, following new U.S. tariffs implemented on October 14. Mining, quarrying, and oil and gas activities contracted by 0.6%, while construction decreased by 0.4%, with residential building construction declining for the third consecutive month.
Service industries were impacted by a nationwide Canada Post worker strike and a teachers’ strike in Alberta. BMO senior economist Robert Kavcic remarked on the weak momentum at the start of the fourth quarter, emphasizing the need for the Canadian economy to strive to avoid another negative output in the final quarter of the year.
The Bank of Canada maintained its key policy rate at 2.25% on December 10, with Macklem highlighting the economy’s overall resilience to U.S. tariffs. The Canadian dollar slightly appreciated to $1.3696 against the U.S. dollar after the GDP data release on Friday morning.
