Reduction in
in October will weaken rates on
Interest rates will rise in 2026, say economists, most of whom had expected an economic downturn.
fell 0.3 per cent in October after rising 0.2 per cent in September as 11 of the 20 industrial sectors followed by Statistics Canada reported declines.
The manufacturing sector, which led the way in September, contracted 1.5% in October. The province-wide teachers' strike in Alberta also had a negative impact on the economy.
GDP was estimated to have increased 0.1 per cent in November, but that data will be updated on Jan. 30, 2026, Statistics Canada said.
'Fourth quarter growth close to zero': Capital Economics
The contraction in GDP in October and a modest recovery expected in November suggest markets are “getting ahead of themselves” in pricing in interest rate hikes next year, an economist at Capital Economics Ltd said. Stephen Brown in a note on Tuesday.
He said October's “bad news” didn't just end this month, but appeared to continue into November, as the preliminary estimate of 0.1 per cent growth for the month was the “least” he expected given the end of the Alberta teachers' strike.
Overall, he expects growth in the fourth quarter, which begins in October and ends in December, to be close to zero.
Growth 'slightly better' than expected: CIBC
Despite the contraction in October, overall growth in the second half of the year is still “slightly better” than the Bank of Canada had forecast – one percent versus 0.75 percent, said CIBC Capital Markets economist Andrew Grantham.
This is due to “surprise” growth in overall GDP in the third quarter, he said.
“This weaker momentum should continue into the new year to reignite interest rate cut talk,” he said in a note on Tuesday.
CIBC continues to forecast no change to the Bank of Canada overnight rate in 2026.
“Worst monthly performance since 2021”: Desjardins
The 0.3% contraction in October was the worst monthly performance since 2021, said Desjardins economist Royce Mendes, but it was not a surprise as the economy's strength in the third quarter appeared “fragile.”
“Without an outsized increase in GDP in December, monthly industry data suggests a modest contraction in the (fourth quarter),” he said in a note. “We see this weakness in economic activity continuing into early 2026 before a more robust recovery emerges later in the year.”
“The situation is stabilizing, not collapsing”: RBC
The 0.3 percent decline was “a step below” what it was
Economist Abby Xu expected the bank to expect this ahead of the release, but it matched Statistics Canada's preliminary estimate.
Trade-related uncertainty continues to weigh on export-oriented industries, but conditions appear to be “stabilizing rather than disrupting,” she said in a note.
“The October data was also impacted by a number of one-off factors that should ease, bolstering the view that October's mildness is not indicative of a broader deterioration,” she said.
'Contradicts the strength of the labor market': Servus
The decline in GDP in October shows economic activity remains fragile, said Servus Credit Union economist Charles St. Arnaud, and also suggests the recovery from tariffs imposed by the United States remains “modest and uncertain.”
Going forward, the short-term question is whether high employment will lead to improved economic growth or whether slower growth will lead to a stalled labor market, he said.
“All of this reinforces our view that the Bank of Canada will keep its policy rate unchanged for an extended period, but it remains vigilant and ready to act if necessary,” he said.
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