Canada’s economy shrank 0.3% in October, its biggest decline in nearly 3 years
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Official data on Tuesday showed Canada’s economy shrank a more than expected 0.3 per cent in October, its biggest decline in nearly three years, due to weakness in both the goods and services sectors.
Analysts had forecast growth to decline 0.2 percent from September as the economy adjusts to US trade measures. Last month, Statistics Canada reported 0.2 per cent GDP growth for September, and Canada avoided a technical recession due to increased defense spending.
The month-on-month decline was the largest since a 0.3 percent decline seen in December 2022. The goods sector declined 0.7 percent in October, while services declined 0.2 percent.
These figures are unlikely to be of great concern to the Bank of Canada. Governor Tiff Macklem said on December 10 that he expected gross domestic product growth to remain weak in the fourth quarter.
The manufacturing sector declined 1.5 percent, partly reflecting a 6.9 percent decline in machinery production. Wood products manufacturing declined 7.3 percent after additional US tariffs took effect on October 14, the biggest decline since April 2020.
Service-producing industries were affected by a nationwide work stoppage by Canada Post employees and a teachers’ strike in the province of Alberta.
“All told, this is a fairly soft pace to start the fourth quarter,” BMO senior economist Robert Kavcic wrote in a note. Statistics Canada said preliminary data for November pointed to modest growth for the following month, which Kavcic said “suggests the Canadian economy has cut out some work to avoid another negative print for the final quarter of the year.”
“This will be a very tumultuous year in what is still to be an up-and-down fashion for Canadian growth.”
The Bank of Canada kept its key policy rate steady at 2.25 per cent on December 10. Macklem, noting that the economy was proving overall resilient to US tariffs, said rates were at the right level to keep inflation close to the bank’s two percent target.
Before the GDP data was released, money markets were predicting that the bank’s next move would be a 25 basis point rate hike, likely in July 2026.
