Key Takeaways
- The Canadian economy slowed in October due to a decline in the manufacturing sector, with real gross domestic product decreasing by 0.3 per cent.
- Economists expect "subdued" economic growth heading into 2026, followed by a gradual recovery.
- The manufacturing sector experienced a 1.5 per cent decline in October, driven by a 2.3 per cent contraction in durable-goods manufacturing industries.
- The mining, quarrying, and oil and gas extraction sector also shrank by 0.6 per cent in October.
- Economists predict that the Bank of Canada will keep its key interest rate unchanged at 2.25 per cent for the foreseeable future.
Introduction to the Canadian Economy
The Canadian economy experienced a slowdown in October, as reported by Statistics Canada. The real gross domestic product (GDP) decreased by 0.3 per cent in October, driven by a decline in the manufacturing sector. This decline was largely expected by economists, who predict that the economy will experience "subdued" growth heading into 2026 before gradually recovering. The manufacturing sector, which is a significant contributor to Canada’s economy, experienced a 1.5 per cent decline in October. This decline was driven by a 2.3 per cent contraction in durable-goods manufacturing industries, which reversed the 2.2 per cent growth seen in September.
Manufacturing Sector Decline
The decline in the manufacturing sector was led by a 6.9 per cent decrease in machinery manufacturing, as well as a 7.3 per cent decline in wood product manufacturing. The wood product manufacturing sector experienced its largest decline since April 2020, with a 9 per cent decrease in sawmills and wood preservation. This decline was largely due to the tariffs imposed by US President Donald Trump on Canadian lumber, which took effect on October 14. The tariffs have had a significant impact on the Canadian forestry industry, leading to production slowdowns and decreased demand for Canadian lumber. The decline in the manufacturing sector is a significant concern for the Canadian economy, as it is a major driver of economic growth and job creation.
Impact on Other Sectors
The decline in the manufacturing sector had a ripple effect on other sectors of the economy. The mining, quarrying, and oil and gas extraction sector shrank by 0.6 per cent in October, more than offsetting the expansion seen in September. The construction sector also posted a decrease for the first time in six months in October, with engineering and construction activities contributing the most to the decline. The public sector aggregate also experienced a decline of 0.3 per cent in October, largely due to the provincewide teachers’ strike in Alberta, which lasted for more than three weeks. The strike had a significant impact on the education sector, leading to decreased economic activity and job creation.
Economic Outlook
Despite the decline in October, economists expect the Canadian economy to experience a gradual recovery in the medium term. The Bank of Canada has held its key interest rate at 2.25 per cent, and economists expect it to remain unchanged for the foreseeable future. The central bank governor, Tiff Macklem, has stated that the economy has proven resilient throughout the past year and that the policy rate is at the level it should be to balance inflation and economic growth. However, some economists predict that the economy will experience a modest 0.5 per cent annualized contraction in the fourth quarter, which could lead to increased slack in the economy and dampen bets for interest rate hikes in 2026.
Conclusion
In conclusion, the Canadian economy experienced a slowdown in October due to a decline in the manufacturing sector. While the decline was largely expected, it is a significant concern for the economy, as the manufacturing sector is a major driver of economic growth and job creation. Economists expect the economy to experience a gradual recovery in the medium term, but predict that growth will remain subdued heading into 2026. The Bank of Canada is expected to keep its key interest rate unchanged, and the economy is expected to experience a modest contraction in the fourth quarter. Despite the challenges, the Canadian economy has proven resilient, and economists expect it to recover gradually over the medium term.