Economy

Canada's economy stalls again in August, and September likely shrank

Real GDP was flat for a second straight month, missing the 0.2% gain economists and Statistics Canada had expected. An early estimate points to a 0.1% decline in September, two days after the Bank of Canada raised rates.

By John Wilson · October 30, 2026

Canada's economy went nowhere in August. Real gross domestic product was essentially unchanged, Statistics Canada said Friday, the second month in a row with no growth. Economists, and the agency's own early estimate, had expected a 0.2% gain.

The outlook for September is weaker still. StatCan's advance estimate shows real GDP falling 0.1% that month, with declines in manufacturing and in mining, quarrying, and oil and gas extraction, partly offset by gains in utilities and wholesale trade.

What moved

Nine of 20 industrial sectors grew. Goods-producing industries edged up 0.1% while services slipped 0.1%. Retail trade was the bright spot, rising 1.2% and reversing its July drop, with car and parts dealers up 1.8%. Manufacturing rose 0.3%, its fifth gain in seven months, helped by machinery (3.8%) and refineries (4.2%), although motor vehicle and parts production fell 5.8%.

Wholesale trade was the biggest drag, down 1.4%, with motor vehicle wholesalers off 4.4%. The public sector shrank 0.2%, its first decline in six months, as federal public administration fell 2.1% with 2026 Census work winding down. Oil and gas extraction dropped 1.2%, offset by a 4.9% jump in mining outside oil and gas. StatCan also pointed to nuclear maintenance outages in Ontario and New Brunswick and an extended summer shutdown at a major auto plant.

A slower third quarter

StatCan's flash estimate puts third-quarter growth at 0.3%, or 1.3% annualized, down from 3.3% in the second quarter. That is well short of the Bank of Canada's projection of 2% for the quarter, which it had raised from 1.5% in July. BMO trimmed its own third-quarter forecast to 1.5%. "It certainly appears that growth has run into some pretty serious headwinds of late," said BMO chief economist Doug Porter. The official quarterly figure is due Nov. 30.

What it means for rates

The numbers arrive two days after the Bank of Canada raised its policy rate to 2.5%, its first hike since 2023, to keep high energy prices from feeding broader inflation. CIBC's Andrew Grantham said the data suggest the economy "was already struggling for momentum even before this week's interest rate hike" and sees a pause in December as likely.

Not everyone agrees. RSM Canada's Tu Nguyen called a December or January move a "coin flip" and leans toward sooner. Markets were still pricing a 57% chance of a hike on Dec. 9 as of Friday morning, according to LSEG data cited by The Canadian Press.

The counter-argument

Two flat months do not make a recession, and some of August's weakness was temporary: Census staffing, plant shutdowns and nuclear maintenance should not repeat. The September estimate is preliminary and will be revised. But with growth sputtering while inflation is projected to rise, the Bank faces the uncomfortable mix of a soft economy and price pressure from energy.

What it means for you

For households, a stalling economy and a rate hike at the same time is a squeeze. Variable-rate borrowers are already paying more after the banks raised prime, and the next move is genuinely uncertain. If you are renewing a mortgage soon or carrying variable-rate debt, this is a good moment to compare options and stress-test your budget. This is general information, not personal financial advice.

Sources

General news and information, not individualized financial advice. Figures reflect the publication date.