Canadian economy slows to 1.3% pace, weaker than BOC forecast
By Nojoud Al Mallees
(Bloomberg) — The Canadian economy is tracking 1.3% annualized growth between July and September, slowing down from a robust second quarter and coming in weaker than the Bank of Canada forecasted.
Real gross domestic product remained unchanged in August for a second month in a row, as nine out of 20 industrial sectors expanded, according to industry-based data reported by Statistics Canada on Friday. A preliminary estimate suggests the economy contracted by 0.1% in September, with declines in manufacturing as well as mining, quarrying and oil and gas extraction partially offset by increases in utilities and wholesale trade.
Economists surveyed by Bloomberg expected the economy grew by 0.2% in August, in line with StatCan’s own preliminary estimate for the month. The Canadian dollar weakened to around 1.397 per U.S. dollar after the print, though it’s still up almost 2% against the greenback this month.
The weaker-than-expected GDP data follows the Bank of Canada’s first interest rate hike in three years on Wednesday, which brought its policy rate to 2.5%. Governor Tiff Macklem said officials were motivated to raise borrow costs due to growing inflation risks from higher energy prices.
In its latest monetary policy report, the bank projected real expenditure-based GDP grew at an annualized pace of 2% in the third quarter, stronger than the latest GDP data suggests.
Macklem said the central bank may need to raise rates again, but he said it would take decisions one at a time given ongoing uncertainty about conflict in the Middle East and the U.S. trade war.
While the Canadian economy is expected to have slowed in the third quarter as trade tensions escalated between Canada and the US, the central bank still anticipates growth to remain resilient through 2028.
“Obviously this was affected by what’s going on in trade relations with the United States. It’s hard to get a read when some of these things happen. Company behaviour adjusts very, very quickly,” Randall Bartlett, deputy chief economist with Desjardins Group, said on BNN Bloomberg Television. “Certainly this is putting a chill on business activity and overall economic activity in Canada, and is teeing up not just a weak Q3 but an even weaker Q4.”
Charles St.-Arnaud, chief economist at Servus Credit Union, said that while the weaker-than-expected GDP data suggests Wednesday’s rate hike may have been premature, the bank is unlikely to change its view on the need for further rate increases.
“It is clear that the Bank of Canada is much more worried by future inflation conditions due to high energy prices than current economic conditions,” he said.
Traders in overnight swaps put the odds of a second rate hike in December at a coin flip. Third quarter expenditure-based GDP data, which will be released at the end of November, will likely play a key role in the bank’s next decision.
Wholesale trade weighed the most on the economy in August, declining by 1.4%. Motor vehicle and motor vehicle parts and accessories wholesalers posted a 4.4% contraction, marking the first decrease in seven months. StatCan says the decline coincides with lower imports of passenger cars and light trucks as well as weaker than usual vehicle manufacturing.
The public sector also fell by 0.2% in August, driven by a 2.1% contraction in the federal government public administration, except in defence.
Meanwhile, retail trade increased by 1.2% as most subsectors grew. A 0.6% decline at gasoline stations and fuel vendors tempered that growth.
The manufacturing sector also expanded by 0.3%, marking the fifth increase in seven months.
–With assistance from Mario Baker Ramirez and Derek Decloet.
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Last modified: October 30, 2026
