The Canadian economy experienced a larger-than-anticipated contraction of 0.3% in October, marking the most significant decline in nearly three years. This decline was attributed to weaknesses in both the goods and services sectors, according to official data released on Tuesday. Analysts had predicted a 0.2% decrease in growth from September, as the economy grapples with adjustments to U.S. trade policies.
In September, Statistics Canada had reported a 0.2% increase in GDP, helping Canada avoid a technical recession primarily due to a surge in defense spending. The 0.3% month-on-month drop in October was the most substantial since December 2022, with the goods sector declining by 0.7% and services contracting by 0.2%.
Looking ahead to November, data indicated that the gross domestic product is expected to grow by 0.1% that month, offering some hope for recovery. Despite these figures, the Bank of Canada is not overly concerned. Governor Tiff Macklem mentioned on December 10 that weak GDP growth was anticipated in the fourth quarter. Money markets are predicting a 25-basis-point hike in the central bank’s rates, likely to occur in July 2026.
Various sectors faced challenges, with manufacturing witnessing a 1.5% decline, partly due to a 6.9% drop in machinery output. Wood product manufacturing fell by 7.3%, the sharpest decline since April 2020, following additional U.S. tariffs imposed on October 14. The mining, quarrying, and oil and gas sector contracted by 0.6%, while the construction sector also saw a 0.4% decrease, with residential building construction declining for the third consecutive month.
Services-producing industries were affected by a nationwide Canada Post worker strike and a teachers’ strike in Alberta. BMO senior economist Robert Kavcic described the momentum at the beginning of Q4 as relatively weak, indicating the need for the Canadian economy to strive to avoid another negative performance in the final quarter of the year.
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 was apt for maintaining inflation close to the bank’s two percent target. Following the release of the GDP figures, the Canadian dollar slightly appreciated against the U.S. dollar, reaching $1.3696, or 73.01 U.S. cents, from C$1.3703, or 72.98 U.S. cents.