Key Takeaways
- Canada’s GDP fell by 0.3 per cent in October, offsetting the 0.2 per cent increase in September.
- The manufacturing sector led the declines, with a 1.5 per cent drop, primarily due to a 6.9 per cent decrease in machinery manufacturing.
- 11 out of 20 industries experienced a decline in productivity, with the manufacturing of wood products dropping by 7.3 per cent.
- The decline in wood manufacturing was largely attributed to the additional tariffs imposed by the US government on Canadian lumber.
- The Bank of Canada has warned that the trade war and US tariffs will continue to weaken the economy and lower productivity.
Introduction to Canada’s Economic Performance
Canada’s GDP fell by 0.3 per cent in October, which more than offset the 0.2 per cent increase in September. This decline was primarily led by the manufacturing sector, which experienced a 1.5 per cent drop. According to Statistics Canada, machinery manufacturing was down 6.9 per cent, contributing the most to the category’s negative output. Overall, 11 out of 20 industries saw a drop in productivity, indicating a significant decline in economic activity.
Manufacturing Sector Decline
The manufacturing sector was the primary contributor to the decline in GDP, with a 1.5 per cent drop. This decline was largely due to a 6.9 per cent decrease in machinery manufacturing. Additionally, the manufacturing of wood products dropped by 7.3 per cent, which was the largest decline since April 2020. Sawmills and wood preservation productivity also fell by 9 per cent, further contributing to the decline in the manufacturing sector. The decline in wood manufacturing was largely attributed to the additional tariffs imposed by the US government on Canadian lumber, effective October 14.
Impact of US Tariffs
The US government’s decision to impose additional tariffs on Canadian lumber had a significant impact on Canada’s economy. The tariffs, which included a 10 per cent tariff on imports of softwood timber and lumber, plus a 25 per cent tariff on some furniture products and parts, resulted in some Canadian softwood lumber entering the US facing tariffs and duties totalling over 45 per cent. This increase in tariffs led to a decline in demand for Canadian lumber, resulting in a significant drop in productivity in the manufacturing sector.
Economic Outlook
Although previous data shows that the economy still managed to avoid a technical recession in 2025, the Bank of Canada has warned that the trade war and US tariffs will continue to weaken the economy and lower productivity. The Bank of Canada tracks GDP, as well as labour market and inflation reports, to determine when or if it needs to change its benchmark interest rate. Tuesday’s economic data from Statistics Canada marks the final major release for 2025, providing a clear picture of the economy’s performance for the year. The decline in GDP and the manufacturing sector’s performance are likely to have a significant impact on the Bank of Canada’s decision-making process.
Conclusion
In conclusion, Canada’s GDP fell by 0.3 per cent in October, primarily due to a decline in the manufacturing sector. The manufacturing sector’s decline was largely attributed to a 6.9 per cent decrease in machinery manufacturing and a 7.3 per cent drop in the manufacturing of wood products. The US government’s decision to impose additional tariffs on Canadian lumber had a significant impact on the economy, resulting in a decline in demand for Canadian lumber. The Bank of Canada’s warning that the trade war and US tariffs will continue to weaken the economy and lower productivity suggests that the economy is likely to face significant challenges in the coming year.