Canada's economy did not grow in August, the second month in a row of essentially no change in real GDP, and an early estimate shows output fell 0.1 per cent in September, Statistics Canada said on Friday 30 October.
Economists had expected a 0.2 per cent gain for August, BNN Bloomberg reported. The timing is awkward. Two days earlier, the Bank of Canada raised its policy rate, in part because it judged that growth had picked up.
How weak was the third quarter?
About half as strong as the central bank assumed. Statistics Canada says its monthly data, including the September estimate, suggest the economy expanded 0.3 per cent in the third quarter, according to its GDP by industry release. Compounded over four quarters, that is about 1.2 per cent at an annual rate, by this publication's arithmetic. BNN Bloomberg reported the flash figure as 1.3 per cent annualized; the difference is rounding.
On Wednesday the Bank of Canada said recent indicators pointed to growth of about 2 per cent at an annual rate in the third quarter, after 3.3 per cent in the second.
| Measure | Figure | Source |
|---|---|---|
| Q2 growth, annualized | 3.3 per cent | Bank of Canada |
| Q3 growth the bank cited, annualized | About 2 per cent | Bank of Canada, 28 October |
| Q3 growth implied by monthly data | 0.3 per cent, about 1.2 per cent annualized | Statistics Canada; annualization is ours |
| August real GDP, month on month | 0.0 per cent | Statistics Canada |
| September advance estimate | -0.1 per cent | Statistics Canada |
| CPI inflation | Around 3 per cent since April | Bank of Canada |
The official third-quarter estimate, by income and expenditure, is due on 30 November and can differ from the industry-based figure.
What held the economy back?
Wholesalers, carmakers and Ottawa. Wholesale trade fell 1.4 per cent in August, the largest drag, with motor vehicle and parts wholesalers down 4.4 per cent. Motor vehicle and parts manufacturing fell 5.8 per cent because of "a prolonged summer shutdown at a major auto assembly plant," the agency said. Oil and gas extraction fell 1.2 per cent, its third monthly decline, as oil sands mines underwent maintenance.
The public sector shrank 0.2 per cent, its first decline in six months, as federal public administration fell 2.1 per cent with the 2026 Census winding down. Public employment was also the drag in September's jobs figures, when the public sector lost 70,000 positions.
There were offsets. Retail trade rose 1.2 per cent after a July fall, led by car dealers. Manufacturing as a whole rose 0.3 per cent, rail transportation grew 3.6 per cent on wheat shipments after a record harvest, and 9 of the 20 industrial sectors expanded. Services edged down 0.1 per cent and goods edged up 0.1 per cent.
Why did the Bank of Canada raise rates anyway?
Inflation. The bank raised its overnight rate target by a quarter point to 2.5 per cent "to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services." It said CPI inflation had been around 3 per cent since April and should reach about 3.5 per cent by the end of the year. It was the bank's first increase in more than three years, BNN Bloomberg said.
By our arithmetic, a 2.5 per cent policy rate is still about half a point below inflation of around 3 per cent. The bank also said growth would slow in the fourth quarter because of new U.S. tariffs, and that "there could be a need to increase the policy rate further."
That leaves the bank between two numbers. Inflation argues for more. Growth of about 1.2 per cent argues for patience. The economy "was already struggling for momentum even before this week's interest rate hike," Andrew Grantham, senior economist at CIBC, said, as quoted by BNN Bloomberg. Tu Nguyen, chief economist at RSM Canada, called the choice between a December and January increase a "coin flip."
What to watch
The next decision is on 9 December, and markets put the odds of another increase at 57 per cent on Friday morning, according to LSEG data cited by BNN Bloomberg. Before then come October's jobs and inflation figures and, on 30 November, the official third-quarter GDP estimate with September's full data. If the quarter comes in near 1.2 per cent and inflation keeps rising toward 3.5 per cent, the bank will have to say which of its two numbers it trusts more. The U.S. Federal Reserve faces a version of the same question with faster growth.
The August GDP figures, the industry detail, the September advance estimate, the implied third-quarter growth and the 30 November release date are from Statistics Canada's release "Gross domestic product by industry, August 2026", published on 30 October 2026. The rate decision, the growth and inflation figures and forecasts, and the date of the next decision are from the Bank of Canada's press release of 28 October 2026. The economists' expectations, the market odds, the reference to the first increase in more than three years and the quotations from Andrew Grantham and Tu Nguyen are as reported by BNN Bloomberg on 30 October 2026. The annualized growth rate, the comparison with the bank's estimate and the real-rate gap are this publication's arithmetic. The analysis is our own.
Topics worldCanadaGDPBank of Canadainterest rateseconomyinflationautos
