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The Canadian economy shrank 0.3% more than expected in October, official data showed Tuesday, its biggest fall in nearly three years, weighed down by weakness in both the goods and services sectors.
Analysts had forecast growth would decline 0.2 percent from September as the economy continues to adjust to U.S. trade measures.
Last month, Statistics Canada reported GDP growth of 0.2% for September and Canada avoided a technical recession, thanks in large part to rising defense spending.
The month-on-month decline was the largest since the 0.3% decline observed in December 2022. In October, the goods sector fell 0.7% and the services sector contracted 0.2%.
But a forecast for November data showed gross domestic product would rise 0.1 percent this month, allowing for some recovery.
These numbers are unlikely to worry the Bank of Canada much. Gov. Tiff Macklem said Dec. 10 that he expects fourth-quarter GDP growth to be weak. Money markets are predicting the central bank's next move will be a 25 basis point rate hike, most likely in July 2026.
The manufacturing sector fell 1.5 percent, partly reflecting a 6.9 percent fall in engineering output. Wood products production fell 7.3%, the biggest decline since April 2020, after additional US tariffs took effect on October 14.
The mining and oil and gas sector contracted 0.6 per cent and the construction sector also fell 0.4 per cent – with residential construction declining for the third month in a row, Statistics Canada said.
Service industries have been hit by a nationwide shutdown of Canada Post workers and a teachers' strike in Alberta.
“Overall, this is fairly weak momentum to start the fourth quarter,” BMO senior economist Robert Kavcic wrote in a note. With initial data for November pointing to modest growth next month, Kavcic said it appears “the Canadian economy has some work to do to avoid another negative outcome in the final quarter of the year.”
“This will cap a very volatile year for Canadian economic growth, which is still fragile.”
On December 10, the Bank of Canada kept its key rate at 2.25 percent. Macklem, noting that the overall economy has proven resilient to U.S. tariffs, said the rate is at the right level to keep inflation close to the bank's two percent target.
The Canadian dollar rose to $1.3696, or 73.01 U.S. cents, from C$1.3703, or 72.98 U.S. cents, after GDP data was released Friday morning.
