{"id":510521,"date":"2026-02-28T22:05:22","date_gmt":"2026-02-28T22:05:22","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/510521\/"},"modified":"2026-02-28T22:05:22","modified_gmt":"2026-02-28T22:05:22","slug":"canadas-economy-contracts-in-final-quarter-of-2025","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/510521\/","title":{"rendered":"Canada\u2019s economy contracts in final quarter of 2025"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

A worker transports a dye on a pulley system to prepare for aluminum extrusion at Magna Aluminum Profile in Salaberry de Valleyfield, Que., in June, 2025.Evan Buhler\/Reuters<\/p>\n

Statistics Canada reported a fourth-quarter contraction in real gross domestic product Friday that economists argue conceals some promising details in underlying economic data.<\/p>\n

Statscan said Friday that real GDP declined 0.6 per cent on an annualized basis in the fourth quarter, falling short of expectations for flat growth from the Bank of Canada and most economists.<\/p>\n

Statscan said the main culprit was businesses drawing down their inventories \u2013 in other words, selling off goods or materials that weren\u2019t reproduced in the quarter.<\/p>\n

Nathan Janzen, RBC\u2019s assistant chief economist, said declining inventories were not necessarily a cause for alarm. Spending was meanwhile rising across the economy last quarter, he explained, a sign that production will ramp up to meet the demand.<\/p>\n

\u201cYou would be more worried if, say, inventories were building rapidly and spending was falling, in which case it would be a sign the economy was overproducing,\u201d Janzen said.<\/p>\n

StatCan said a rise in household spending and increased government capital spending \u2013 particularly on weapons systems \u2013 gave the economy a lift in the quarter. Business investment, meanwhile, declined thanks to weakness in residential activity.<\/p>\n<\/p>\n

Last quarter\u2019s contraction came after real GDP growth of 2.4 per cent in the third quarter, which Statscan revised down slightly from initial estimates. The economy also shrank in the second quarter as tariffs took full effect in the economy, but Statscan also revised that decline to 0.9 per cent from previous estimates of a steeper 1.8 per cent contraction.<\/p>\n

Janzen said the threat of tariffs led businesses in both Canada and the United States to stockpile inventories early in the year in an effort to get ahead of import duties. That rush and the ensuing hangover put the economy on a see-saw through much of last year.<\/p>\n

\u201cIt\u2019s been a very volatile year, and part of that is tied to just the nature of the shock that the economy\u2019s been trying to absorb,\u201d Janzen said.<\/p>\n

StatCan said real GDP rose 1.7 per cent in 2025 overall, cooling from 2-per-cent growth in each of the previous two years and marking the slowest pace of annual growth since 2016, outside the COVID-19 pandemic.<\/p>\n

\u201cLower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025,\u201d StatCan said in its report.<\/p>\n

The agency said exports rose in consecutive quarters to close 2025 but shipments to the United States did not fully recover after the sharp second-quarter drop.<\/p>\n

Janzen said, all told, the economy proved more resilient to the hit from tariffs in 2025 than initially expected.<\/p>\n

He noted that, on a per capita basis, GDP rose for the first time in three years in 2025. Despite economic turbulence, slowing population growth has helped to improve conditions on a per-person basis in the economy, Janzen explained.<\/p>\n

Also Friday, StatCan reported that real GDP was up 0.2 per cent in December as the manufacturing sector rebounded to partially offset two straight months of declines. Wholesale trade also grew for the first time in three months while the mining, quarrying and oil and gas extraction sectors saw activity drop.<\/p>\n

Advance estimates suggest real GDP was flat in January. Initial readings suggest the momentum in manufacturing was short-lived and the industry contracted to start the year.<\/p>\n

Michael Davenport, senior Canada economist at Oxford Economics, said in a note that Friday\u2019s data release showed economy started 2026 on \u201cshaky footing.\u201d He is expecting the economy will skirt a recession with modest growth in the first quarter.<\/p>\n

\u201cStill, soft economic momentum will persist in the near term, due to U.S. tariffs, elevated trade policy uncertainty, and a shrinking population. This will keep recession risks elevated,\u201d Davenport said.<\/p>\n

The Bank of Canada said in updated forecasts last month that it expects growth to rebound to 1.8 per cent annualized in the first three months of 2026. The central bank held its policy rate steady at 2.25 per cent in January.<\/p>\n

BMO chief economist Doug Porter said in a note that the Bank of Canada\u2019s projections \u201ccould be a stretch,\u201d given the weight of ongoing U.S. tariff uncertainty on the economy.<\/p>\n

\u201cUntil that uncertainty clears, the economy will likely continue to struggle,\u201d Porter said.<\/p>\n

Are further BoC rate cuts on the horizon? Here\u2019s what markets and economists think after today\u2019s weak GDP reading<\/a><\/p>\n

Mild growth expectations for 2026 keep alive the possibility of additional interest rate cuts from the Bank of Canada, Porter added, \u201cbut we\u2019re not quite there yet.\u201d<\/p>\n

Financial market odds for an interest-rate cut at the central bank\u2019s next decision on March 18 sat below 10 per cent as of Friday at noon, according to LSEG Data & Analytics.<\/p>\n

Janzen said that the firm details underneath the headline contraction in the economy last quarter lower the odds of a future Bank of Canada rate cut.<\/p>\n

RBC\u2019s base case sees the central bank sticking to the sidelines for the rest of the year, but Janzen did not rule out the possibility of more easing if conditions worsen.<\/p>\n

\u201cIf the economic data were to significantly weaken, say, if inflation were to slow significantly more than we expect, there is room for them to cut interest rates further if they need to,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: A worker transports a dye on a pulley system to prepare for aluminum…\n","protected":false},"author":2,"featured_media":510522,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[3793,3782,64,63,3794,1348,3774,3795,99,2065,3773,3787,3788,3784,3775,3772,164,2555,75,69,3781,3805,3776,3777,3786,3783,1625,2289,3796,3779,3800,3801,3803,3798,3802,3797,3799,3778,3790,3791,84,3789,2111,635,105,3792,3785,3780,1346,3804],"class_list":{"0":"post-510521","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-alberta","9":"tag-arts-news","10":"tag-au","11":"tag-australia","12":"tag-bc","13":"tag-breaking-news","14":"tag-breaking-news-video","15":"tag-british-columbia","16":"tag-business","17":"tag-canada","18":"tag-canada-news","19":"tag-canada-sports","20":"tag-canada-sports-news","21":"tag-canada-trafficcanada-weather","22":"tag-canadian-breaking-news","23":"tag-canadian-news","24":"tag-economy","25":"tag-education","26":"tag-environment","27":"tag-federal-government","28":"tag-foreign-news","29":"tag-globe-and-mail","30":"tag-globe-and-mail-breaking-news","31":"tag-globe-and-mail-canada-news","32":"tag-government","33":"tag-life-news","34":"tag-lifestyle","35":"tag-local-news","36":"tag-manitoba","37":"tag-national-news","38":"tag-new-brunswick","39":"tag-newfoundland-and-labrador","40":"tag-northwest-territories","41":"tag-nova-scotia","42":"tag-nunavut","43":"tag-ontario","44":"tag-pei","45":"tag-photos","46":"tag-political-news","47":"tag-political-opinion","48":"tag-politics","49":"tag-politics-news","50":"tag-quebec","51":"tag-sports-news","52":"tag-technology","53":"tag-travel","54":"tag-trudeau","55":"tag-us-news","56":"tag-world-news","57":"tag-yukon"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/510521","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=510521"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/510521\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/510522"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=510521"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=510521"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=510521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}