Canada’s GDP Down 0.3% in August, Weak Q3 Growth Anticipated: StatCan

Canada’s real gross domestic product (GDP) saw a decline of 0.3 percent in August, and preliminary indicators suggest the economy registered little growth in the third quarter, according to a new report from Statistics Canada.

August marked the fifth decline this year for goods-producing industries, while the services sector experienced its first contraction in six months, the Oct. 31 report found.

August’s downturn largely counterbalances a 0.3 percent increase in real GDP for July, with decreases experienced in both goods-producing and services-producing industries, StatCan said. Real GDP represents a country’s overall economic production, adjusted for inflation, using the prices from a base year to offer a more precise assessment of growth over time.

Goods-producing sectors experienced a decrease of 0.6 percent in August, representing the fifth contraction for this aggregate since the start of the year, the report said. Services-producing sectors saw a slight decline of 0.1 percent—the first drop in six months—influenced by reductions in transportation and warehousing as well as in wholesale trade.

Contributing Factors

The wholesale trade sector experienced a decline of 1.2 percent in August, following three consecutive months of increases, StatCan reported. Motor vehicle and parts wholesalers were the primary contributors to this decline, as activity within the sub-sector fell by 8.3 percent, which coincided with a decrease in both exports and imports of motor vehicles and their parts.

Food, beverage, and tobacco wholesalers also experienced a decline in August, dropping 5.2 percent to mark the largest monthly contraction rate since November 2022. The dip served to negate the two prior months of increases and occurred alongside diminished activity within food manufacturing.

StatCan reported that the mid-month work stoppage by 10,000 Air Canada flight attendants in August hindered air transportation operations. This particular sub-sector saw a 4.6 percent drop for the month, representing the largest decline recorded since January 2022.

Pipeline transportation was also down in August, falling 0.7 percent, primarily due to lower transportation of natural gas, StatCan said. This decrease coincided with diminished exports to the United States and a reduction in natural gas distribution activities, as domestic deliveries to residential, commercial, and industrial customers fell in August.

The wholesale trade industry, along with the mining and quarrying sub-sectors, experienced declines in August as well, but this was counterbalanced by an increase in oil and gas extraction, which grew slightly for the third month in a row.

The tariff-sensitive manufacturing industry recorded a 0.5 percent decline, yet initial insights into September’s real GDP figures suggest that the sector could have bounced back last month.

StatCan’s preliminary estimates for September project a 0.1 percent increase in real GDP, driven by growth in manufacturing, finance and insurance, as well as mining, quarrying, and oil and gas extraction. The agency anticipates that ongoing losses in wholesale trade and a downturn in retail trade were hindrances to growth in the previous month.

Based on initial estimates, StatCan projects a 0.4 percent annualized growth for the third quarter. This is marginally below the Bank of Canada’s prediction for the quarter, which was announced together with its quarter-point rate cut to 2.25 percent earlier this week.

Expert Predictions

Economic experts say Canadians can continue to expect the economy to struggle in the coming months, fuelled by trade uncertainty brought on by the strained relationship between Canada and the United States.

Bank of Montreal managing director of Canadian rates and macro strategist Benjamin Reitzes said there will likely be a few boosts to the economy this month, but the outlook won’t change much until a trade deal is secured.

“The Canadian economy was no treat in August amid a few special factors and the ongoing drag from trade/tariff uncertainty,” he wrote in a note to investors. “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.”

TD Bank economist Marc Ercolao said although trade-related impacts on inflation and economic growth are becoming increasingly evident, “that doesn’t lower the level of uncertainty in coming quarters” as Canada strives to reach a trade deal with the United States.

A trade deal has been made more difficult in recent days after U.S. President Donald Trump halted all talks with Ottawa, citing an anti-tariff ad that was being aired on U.S. networks by the Ontario government. Trump criticized the use of a speech to the nation by late U.S. President Ronald Reagan in the ad because he said it misrepresented Reagan’s stance on tariffs.

Trump has since suspended negotiations with Prime Minister Mark Carney and threatened to slap an extra 10 percent tariff on Canadian imports.

Tariffs and trade uncertainty are only part of what Canadians can expect in the coming months, however.

Ercolao said Canadians should not look for any more rate cuts from the Bank of Canada any time soon.

“For now, the growth backdrop is expected to remain weak and gradually recover over the medium-term,” he wrote in an Oct. 31 note. “As such, we maintain our view that the BoC has reached the end of their interest rate easing cycle.”