Canada’s economic system
misplaced momentum on the finish of final 12 months as actual
gross home product (GDP)
declined 0.2 per cent within the fourth quarter, Statistics Canada mentioned Friday, and annual development dropped to its slowest tempo since 2020.
On an annualized foundation, GDP fell 0.6 per cent within the fourth quarter. GDP expanded by simply 1.7 per cent in 2025, the company mentioned, a results of decrease exports, significantly to the US.
The fourth quarter decline was attributed to withdrawals from enterprise inventories and adopted a 0.6 per cent improve within the third quarter.
Statistics Canada’s advance estimate
for January means that actual GDP remained flat, with will increase in mining, quarrying, oil and gasoline extraction, finance and insurance coverage offset by decreases in manufacturing, actual property, and rental and leasing.
Michael Davenport, senior Canada economist at Oxford Economics, mentioned in a observe that the economic system continues to be on “recession watch,” however that one may very well be narrowly averted with modest GDP development within the first quarter of 2026.
“Nonetheless, mushy financial momentum will persist within the close to time period, resulting from U.S. tariffs, elevated commerce coverage uncertainty, and a shrinking inhabitants,” he mentioned. “This may maintain recession dangers elevated.”
GDP rose 0.2 per cent in December, barely greater than the company’s advance estimate of 0.1 per cent. The achieve was pushed by will increase in each services-producing and goods-producing industries.
Will increase in wholesale commerce (1.7 per cent), public sector (0.2 per cent), transportation and warehousing (0.7 per cent) helped services-producing industries develop 0.2 per cent within the month. Items-producing industries additionally elevated 0.2 per cent, pushed by manufacturing (1.2 per cent) and utilities (2.7 per cent).
General, 11 of the 20 industrial sectors expanded in December.
Progress in manufacturing in December partially offset back-to-back declines in October and November. Nonetheless, Statistics Canada mentioned manufacturing was the “largest detractor to development” final 12 months, shrinking 1.5 per cent within the fourth quarter and a pair of.6 per cent in 2025, the third consecutive 12 months of declines.
Exports rose 1.5 per cent within the fourth quarter, up from 0.9 per cent within the third quarter, pushed by greater exports of unwrought gold, unwrought aluminum and aluminum alloys. Exports fell 1.7 per cent within the 12 months, as shipments to the U.S. didn’t absolutely get better following a 7.5 per cent drop within the second quarter.
Wholesale commerce was up 1.7 per cent in December, led by 11 per cent development in motor autos, motorized vehicle components and equipment service provider wholesalers, as imports of passenger vehicles rebounded.
“The growth in December largely offset the decline in November, which was brought on by the worldwide semiconductor chip shortages that disrupted automotive manufacturing,” Statistics Canada mentioned in its report.
Stephen Brown, deputy chief North America economist at Capital Economics, mentioned a key determine for the Financial institution of Canada will probably be home demand, which mixes family consumption, enterprise funding and authorities spending. That determine grew by 2.4 per cent — nicely above its potential development charge of nearer to 1 per cent — in opposition to a backdrop of “depressed immigration and labour power development.”
“That achieve in home demand was partly resulting from an extra decline within the family saving charge to 4.4 per cent, nevertheless,” Brown mentioned in a observe. “That was 0.8 per cent factors decrease than the prior quarter and raises some questions in regards to the extent to which stronger consumption development could be sustained.”
Royce Mendes, managing director and head of macro technique at Desjardins Group, mentioned in a observe that whereas there isn’t “constantly robust” underlying momentum within the economic system, it’s not weak sufficient for the central financial institution to chop rates of interest additional.
The Financial institution of Canada has maintained its coverage rate of interest at 2.25 per cent in its final two bulletins in December and January. The central financial institution’s subsequent charge resolution comes on March 18, and Mendes mentioned markets are pricing in a roughly 40 per cent chance of one other charge reduce this 12 months.
“The economic system nonetheless has many hurdles to cross within the first half of this 12 months, so there’s nonetheless an opportunity that central bankers is likely to be pressured again into motion,” he mentioned. “However, for now, it seems like they’ll be glad remaining spectators.”
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