Canada’s GDP Growth Contracted Unexpectedly in Fourth Quarter of 2025: StatCan Data

Canada’s gross domestic product (GDP) fell by 0.2 percent in the final quarter of 2025, bringing yearly GDP growth to 1.7 percent.

The Bank of Canada had projected that Canada’s economic growth in the fourth quarter would be flat, and not decline, after “expanding rapidly” by 0.6 percent in the third quarter. It also expected that Canada’s GDP growth would be 1.1 percent overall in 2025.

Statistics Canada said on Feb. 27 that the decline in the fourth quarter was due to withdrawals of business inventories following inventory accumulations made in the third quarter of the year. This was partially offset by higher exports, household spending, and “government capital investment.”

Canada’s GDP increase in 2025 was the “slowest pace of annual growth” since the COVID-19 pandemic began in 2020, according to the statistics agency. It said that lower exports, mainly to the United States, were the main contributor to this slower growth.

In the fourth quarter, businesses withdrew from non-farm inventories in the fourth quarter after adding to their stock in the previous two quarters. StatCan said the largest withdrawals happened in the manufacturing sector, followed by the wholesale trade sector. 

Canadian exports rose by 1.5 percent in the fourth quarter, led by higher exports of unwrought gold and aluminum, and aluminum alloys. Overall, exports fell by 1.7 percent in 2025, as shipments to the United States “did not fully recover following the drop in the second quarter.”

The United States placed a number of tariffs on Canada throughout 2025, including 50 percent tariffs on steel, aluminum, and copper; 25 percent tariffs on vehicles and auto parts; 25 percent tariffs on upholstered furniture, kitchen cabinets, and vanities, and 10 percent tariffs on oil and potash. Canadian exports not covered under the United States-Mexico-Canada Agreement (USMCA) saw a tariff rate of 25 percent, which was increased to 35 percent in August 2025.

Canadian imports rose by 0.3 percent in the fourth quarter, as higher imports of computers, clothing, and metal ores were offset by lower imports of pharmaceutical and medicinal products. Overall for 2025, imports were down by 0.4 percent due to the 2.9 percent decline in the third quarter.

Household spending rose by 0.4 percent in the fourth quarter after a 0.2 percent decline in the third quarter. While Canadians spent less money on new passenger vehicles and alcohol in the fourth quarter, they spent more on rent and financial services. On an annual basis, household consumption rose by 2.3 percent.

Total capital investment rose by 0.8 percent in the fourth quarter, which Statistics Canada said was due to more government investment in weapons systems. However, business capital investment fell by 0.1 percent.

Overall, total capital investment rose by 1.4 percent in 2025, with a 45.9 percent increase in government investment in weapons systems and a 6.7 percent rise in engineering structures. Business investment rose by 0.3 percent in 2025.

Compensation for employees rose by 0.5 percent in the fourth quarter, with federal government and public administration employees seeing a 4.5 percent rise in wages, while finance, real estate and company management saw a 1.3 percent raise. Construction workers saw a 1.2 percent decline.

Compensation of employees rose 3.9 percent overall in 2025, marking the smallest increase on an annual basis since 2016, with the exception of the 2020 pandemic.