Canada: Economy slips into contraction in the fourth quarter of 2025
GDP reading: Canada’s GDP contracted 0.6% in seasonally adjusted quarter-on-quarter annualized (SAAR) terms in Q4, following 2.4% growth in the prior quarter.
Inventory drawdown masks underlying economic improvement: The decline was driven by a drawdown of business inventories. The underlying economy performed well: Compared with the previous period’s data, readings in Q4 strengthened for private consumption (+1.7% vs -0.8% in Q3), government consumption (+3.1% vs -2.7% in Q3), fixed investment (+3.3% vs +2.1% in Q3) and exports of goods and services (+6.1% vs +3.8% in Q3).
GDP outlook: Preliminary data suggest that real GDP was broadly flat in January from December. Gains in mining, quarrying, oil and gas extraction, and finance and insurance were offset by declines in manufacturing and in real estate and rental and leasing.
Panelist insight: On the reading, TD Economics’ Maria Solovieva said:
“Canada ended the year on a weaker footing as businesses drew down inventories, weighing on headline growth. For 2025 as a whole, the economy slowed to a 1.7%, primarily due to lower exports to the United States. That said, domestic demand grew at a better 2.3% pace, supported by stronger government spending. The rebound in consumption and the return of non-residential investment in the fourth quarter provide some reassurance that underlying demand is stabilizing.”