Canada’s economy contracted by 0.3 per cent in October, exceeding expectations and recording its steepest monthly decline in almost three years, according to new data released Tuesday by Statistics Canada. Weakness was evident across both goods-producing and services-producing industries.
Economists had anticipated a smaller pullback of 0.2 per cent as Canada continues to adjust to U.S. trade measures. The October decline followed modest growth of 0.2 per cent in September, a result that helped the country narrowly avoid a technical recession, largely due to increased defence spending.
The month-over-month contraction was the largest since December 2022. Output in the goods sector fell 0.7 per cent, while services declined by 0.2 per cent.
Manufacturing posted a sharp 1.5 per cent drop, driven in part by a 6.9 per cent plunge in machinery manufacturing. Wood product manufacturing fell 7.3 per cent — its biggest decline since April 2020 — after additional U.S. tariffs took effect on Oct. 14.
Services-producing industries were also pressured by labour disruptions, including a nationwide Canada Post work stoppage and a teachers’ strike in Alberta.
The data are not expected to significantly alter the Bank of Canada’s outlook. Governor Tiff Macklem said earlier this month that economic growth was likely to remain weak in the fourth quarter.
BMO senior economist Robert Kavcic described the October figures as “soft momentum” heading into the final quarter of the year. While Statistics Canada’s preliminary estimate points to modest growth in November, Kavcic cautioned that the economy may struggle to avoid another contraction before year-end, capping what he called a “choppy year for Canadian growth.”
The Bank of Canada held its benchmark interest rate at 2.25 per cent on Dec. 10, with Macklem noting that the economy has shown resilience in the face of U.S. tariffs and that current rates remain appropriate to keep inflation near the two per cent target. Prior to the GDP release, financial markets were pricing in the next potential rate move as a 25-basis-point hike, likely in mid-2026.
