Canada’s real gross domestic product (GDP) fell 0.3% in August, well below economists’ expectations for no change. The decline erased most of July’s 0.3% rebound, Statistics Canada noted.
Declines were seen in a dozen industries, StatCan reported, with utilities (-2.3%), transportation and warehousing (-1.7%) and wholesale trade (-1.2%) posting the largest drops.
The weak GDP reading adds to signs the broader economy is losing momentum. Canada’s unemployment rate held at 7.1% in September, while youth unemployment climbed to 14.7%, the highest since 2010 outside of the pandemic years.
“The Canadian economy was no treat in August amid a few special factors and the ongoing drag from trade/tariff uncertainty,” says BMO’s Benjamin Reitzes. “While those one-time factors should reverse—and the Blue Jays playoff run will likely provide a lift to October—the economy is expected to struggle until there’s more certainty on trade.”
Despite the disappointing August figures, there are early signs the economy may have regained a bit of ground heading into the fall. Advance estimates for September show a slight increase of 0.1%, and a 0.1% uptick for the third quarter of 2025.
Economists see high bar for additional rate cuts
With the Bank of Canada lowering its policy rate to 2.25% on Wednesday and signalling it’s now “at about the right level” to keep inflation near 2% while supporting the economy’s adjustment, economists don’t expect any further cuts this year.
TD’s Marc Ercolao said trade-related pressures continue to weigh on growth, with third-quarter GDP tracking a modest 0.4% annualized—consistent with TD’s and the Bank of Canada’s forecasts. While the effects of tariffs are becoming clearer, he noted additional easing isn’t in the cards given the current expectations.
“For now, the growth backdrop is expected to remain weak and gradually recover over the medium-term,” he wrote. “As such, we maintain our view that the BoC has reached the end of their interest rate easing cycle after delivering a 25 bps cut this week.”
Most economists share that view, expecting the Bank of Canada to hold rates steady for the rest of the year.
Reitzes added that further cuts are unlikely unless a deeper slowdown “spooks the Bank of Canada after this week’s messaging,” though he noted that “risks remain skewed to the downside” following August’s weak GDP reading.
CIBC’s Andrew Grantham struck a similar tone but cautioned that growth will need to improve if the central bank is to maintain that pause through next year, as his team currently projects.
He added that policymakers may be “slightly scared by the apparent lack of momentum towards the end of the quarter,” as the pickup in fourth-quarter growth they projected now looks less likely.
Following the weaker-than-expected GDP report, the loonie slipped 0.3% to $0.71 US. Bond markets also reacted, with the five-year Government of Canada yield falling 2 bps to 2.64%.
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Last modified: October 31, 2025
