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Canada’s Economy in a Soft Spot at the End of the Year

Canadian Economics

By: Viktor Cicman

    

Real gross domestic product (GDP) was unchanged month-over-month in November, following a 0.3 per cent decline in October. Advanced estimates indicate the economy likely contracted by 0.1 per cent in December, pointing to a 0.4 per cent (annualized) decline in the final quarter of 2025.

  • Good-producing industries continued to drag growth down, declining by 0.3 per cent in November. This is the third time in fourth months the goods sector has contracted.
  • The manufacturing sector led the weakness in November, falling by 1.3 per cent for the month, weighed down by supply chain bottlenecks and tariffs. Output for motor vehicles and parts manufacturing was notably weak, down 6.4 per cent decline in the month.
  • Durable goods manufacturing continued its downward trajectory. Output in the industry fell to its lowest levels sine 2011 (excluding 2020) in November. Machinery manufacturing, fabricated metal product manufacturing, and primary metal manufacturing have contributed the most to the decline.
  • The wholesale trade sector contracted 2.1 per cent in November, falling for the second straight month. Declines in the motor vehicle and parts, building materials and supplies segments drove November’s downturn.
  • The service sector edged up 0.1 per cent in the month, providing a bright spot. Retail trade expanded by 1.3 per cent in November, as all subsectors grew in the month. This increase fully offset the consecutive declines recorded in the previous two months.
  • The postal service subsector lifted the transportation and warehousing sector, rising by 41.7 per cent in November, as mail and parcel delivery activities resumed after all job actions were suspended. And the increase in educational services was driven in large part by a rise in elementary and secondary schools (+1.7 per cent), as classes resumed in Alberta following the end to the teachers’ strike on October 29.

Key insights

With today’s release of GDP by industry data, expectations that Canda’s economy was weak in the fourth quarter were confirmed. GDP growth was flat in November after contracting 0.3 per cent in October. Advanced estimates indicate that fourth quarter GDP will decline at an annualized rate of 0.4 per cent, marking the economy’s second quarterly decline in 2025. Tariffs continue to weigh on many trade related sectors, as October export volumes still had not returned to their April levels, and Canada’s economic performance in 2026 will in-part hinge on U.S. trade policy and Canada’s success at expanding exports in other markets.

Despite these challenges, parts of the economy have shown resilience in 2025. After rising earlier in the year, the unemployment rate improved toward year‑end as hiring strengthened. Employment increased by 181,000 (+0.9 per cent) from August to November, then held steady in December. Household spending held up relatively well throughout 2025 as inflation eased, and government spending rose—particularly from Budget 2025’s focus on defence and capital investment—supporting growth over the short and medium term. The net result is that while near-term weakness is expected as Canada’s economy transitions from easy access to the U.S. market, an overall healthy labour market, a better investment climate, and stimulative government policy should all boost prospects in 2026.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit Signal49 Research’s Canadian Outlook.

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