Canada’s real gross domestic product (GDP) fell 0.3% in August, well below economists’ expectations of no change. Statistics Canada noted that the decline erased most of July’s 0.3% rebound.
Statistics Canada reported that more than a dozen industries experienced declines, with utilities (-2.3%), transportation and warehousing (-1.7%) and wholesale trade (-1.2%) experiencing the largest declines.
The weak GDP data is further evidence that the overall economy is losing momentum. Canada’s unemployment rate remained at 7.1% in September, while youth unemployment climbed to 14.7%, the highest level since 2010, a non-pandemic year.
“The Canadian economy underperformed in August due to a number of idiosyncratic factors and continued drag from trade/tariff uncertainty,” said BMO’s Benjamin Reitzes. “While these one-time factors should reverse — and a Blue Jays playoff run could provide a boost in October — the economy is expected to struggle until there is more certainty on trade.”
Despite the disappointing data for August, there are early signs that the economy may have regained some ground heading into the fall. Advance forecasts for September pointed to slight growth of 0.1%, followed by 0.1% growth in the third quarter of 2025.
Economists see high threshold for further rate cuts
The Bank of Canada lowered its policy interest rate to 2.25% on Wednesday, saying it is currently “at an appropriate level” to keep inflation around 2% while supporting economic adjustment. Economists do not expect further interest rate cuts this year.
TD Bank’s Marc Ercolao said trade-related pressures continued to weigh on economic growth, with GDP growing at an annualized rate of 0.4% in the third quarter, in line with forecasts from TD Bank and the Bank of Canada. While the impact of tariffs is becoming increasingly clear, he noted that further easing of policy is unlikely given current expectations.
“For now, the growth backdrop is expected to remain subdued and gradually recover over the medium term,” he wrote. “We therefore maintain our view that the Bank of Canada’s interest rate easing cycle has ended following this week’s 25 basis point rate cut.”
Most economists agree, with the Bank of Canada expected to keep interest rates steady for the remainder of the year.
Reitzes added that further rate cuts were unlikely unless a further economic slowdown “spooks the Bank of Canada after this week’s information,” although he noted that “risks remain tilted to the downside” after weak GDP data in August.
CIBC’s Andrew Grantham struck a similar tone, but warned that growth would need to improve if the central bank was to continue the pause into next year, as his team currently expects.
He added that policymakers may be “a little spooked by the apparent lack of momentum at the end of the quarter” as their forecast for a pick-up in growth in the fourth quarter now looks unlikely.
The Canadian dollar fell 0.3% to $0.71 after a weaker-than-expected GDP report. The bond market also reacted, with the Canadian five-year government bond yield falling 2 basis points to 2.64%.
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Last modified: October 31, 2025
