Author: Norud Al Malis
(Bloomberg) — The Canadian economy appears poised to maintain growth between July and September, possibly rebounding from a contraction in the second quarter but still weakened by U.S. tariffs.
Industry-based gross domestic product rose 0.1 per cent in September, according to preliminary estimates from Statistics Canada on Friday. The economy shrank 0.3% in August, missing expectations in a Bloomberg survey of economists for flat growth.
Taken together, the data shows that the annualized growth rate in the third quarter was 0.4%. Once full spending data is released on November 28, the Bank of Canada expects economic growth for the period to be 0.5%.
By that measure, real gross domestic product contracted at an annualized rate of 1.6% in the second quarter as U.S. tariffs stifled exports. Although the economy has rebounded somewhat from the initial shock, business investment and hiring are expected to remain weak as the trade war drags on.
The Bank of Canada cut its key interest rate by 25 basis points for a second consecutive time on Wednesday to support economic growth at a time when U.S. tariffs are curbing economic activity. But the central bank said it may not cut rates further, noting that its ability to offset tariff losses is limited. Its policy rate is currently 2.25%, the lower end of the neutral range.
In its monetary policy report released on Wednesday, the central bank predicted that the economy will remain in oversupply until 2027. The central bank also lowered its growth forecast for the second half of the year to 0.75%, the first time it has released a base-case forecast since January.
The bank also lowered its 2025 economic growth forecast to 1.2% and its 2026 economic growth forecast to 1.1%. Both had been expected to be 1.8%. Policymakers expect economic growth to rebound slightly to 1.6% in 2027.
The trade war with the United States has hit Canadian manufacturing particularly hard. Friday’s GDP report showed that manufacturing fell 0.5% month-on-month in August and 3.2% year-on-year.
Meanwhile, the goods-producing industry as a whole shrank by 0.6% in August, its fifth contraction since the beginning of the year.
The services production industry also edged down 0.1%, driven by contractions in transportation and warehousing and wholesale trade.
A strike by Air Canada flight attendants has led to the sharpest drop in air traffic since January 2022, when the Omicron variant of Covid-19 caused a drop in air travel.
—With help from Mario Baker Ramirez.
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Last modified: October 31, 2025
