Canada’s economic growth is expected to continue slowing in the fourth quarter, raising concerns of another interest rate hike by the Bank of Canada in December.

Economists said the economy grew by 1.3 per cent on an annualized basis in the third quarter but is still below the Bank of Canada’s outlook of two per cent.

These figures came after Statistics Canada reported Friday that real gross domestic product was flat in August and contracted 0.1 per cent in early September, according to a flash estimate.

Here’s what economists think the latest GDP data means for the Bank of Canada’s next move.

‘This big cooldown may be somewhat overstated’: Bank of Montreal

“Canadian real GDP was surprisingly soft in the late summer, as the US/Canada trade dispute flared right in the middle of the quarter,” Douglas Porter, chief economist at BMO Financial Group, said in a note.

Porter explained that nine out of the 20 industries recorded growth, nine contracted, and two remained unchanged, adding that the dip in August GDP was “only at the third decimal place.”

He said “decent gains” in manufacturing and construction were offset by a 0.8 per cent drop in public sector activity, due to the continued winding down of the “major special factor” — 2026 census activity — though “that only clipped GDP by just under half a tick.”

“But just as we suspected that the Q2 strength was overstated, this big cooldown may be somewhat overstated, especially since some of it is census-related,” he said.

With ongoing trade tensions, weakness in the housing market, and concerning employment figures, Porter said growth has “run into some pretty serious headwinds” and is unlikely to pick up in the fourth quarter.

“For the Bank of Canada, markets are leaning to better than 50-50 odds of a follow-up hike in December, but more soft signs like this will get those odds pulling back.”

‘Weak handover to the fourth quarter’: Capital Economics

“This is not only far below the Bank of Canada’s upwardly revised 2.0 per cent forecast but even lower than our pessimistic 1.5 per cent figure,” said Bradley Saunders, North America economist at Capital Economics, in a note, referring to the country’s projected 1.3 per cent annualized growth in the third quarter.

Saunders said real GDP results, “acting also as a weak handover to the fourth quarter,” reinforce Capital Economics’ view that “the next rate hike won’t come until 2027.”

He added that the agency did not anticipate a census-related 0.8 per cent decline in economic activity in the public sector.

‘Disappointing report relative to expectations’: TD Economics

“This was a disappointing report relative to expectations and, more importantly, Statistics Canada’s guidance for September looks no better,” Marc Ercolao, an economist at TD Economics, said in a note, adding that although growth is positive, it’s still “notably” below the central bank’s recent projection.

“For the Bank of Canada, today’s report may cast a little more doubt around the durability of the recovery heading into 2027,” he said.

He cautioned against another interest rate hike in December.

Signs of weaker economic growth, especially with trade uncertainty and higher energy costs, could make it harder for the Bank of Canada to justify raising interest rates, he said, despite its concerns about rising inflation.

‘Supportive of the Bank holding fire for now’: CIBC

“(Friday’s) data suggested that the Canadian economy was already struggling for momentum even before (Wednesday’s) interest rate hike,” CIBC Capital Markets’ senior economist Andrew Grantham said in a note.

He added that the latest GDP results suggest the economy may have entered the fourth quarter with “weaker” momentum than the Bank of Canada anticipated, despite already forecasting GDP growth below one per cent.

“There’s plenty more data to be released… but today’s release is supportive of the Bank holding fire for now on a further interest rate hike,” said Grantham.

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