Canada’s economic performance in the fourth quarter fell below expectations, with a contraction of 0.6% annualized GDP, driven by manufacturers depleting inventories rather than producing new goods, according to Statistics Canada data. This marks the slowest annual growth rate since 2020, with a 1.7% increase in 2025. Lower exports, especially to the U.S., were cited as the primary factor for the subdued GDP growth.
Despite some positive contributions from exports, household spending, and government investments, the overall growth was hindered by substantial inventory drawdown. Businesses withdrew $23.46 billion from inventories, nearly matching the previous year’s fourth-quarter numbers. Investments in residential structures also declined by 4.4% annually in the fourth quarter, further impacting GDP.
The Bank of Canada had anticipated 1.7% economic growth for the year, with a flat forecast for the fourth quarter. The economy experienced fluctuations throughout the year due to changes in exports influenced by U.S. tariffs. Statistics Canada revised third-quarter growth to 2.4% and adjusted second-quarter contraction to 0.9%.
Apart from inventory effects, a decline in investments in residential construction contributed to the GDP decrease in the fourth quarter. While exports to the U.S. declined overall, fourth-quarter exports saw a 1.5% increase, primarily due to higher unwrought gold exports. Household spending and total capital investments also showed positive growth in the same period.
Monthly GDP figures grew by 0.2%, indicating some positive momentum compared to the previous month. BMO’s chief economist, Douglas Porter, noted that the setback in the last quarter was not indicative of the underlying economic momentum. However, uncertainty surrounding tariffs and trade continues to weigh on the economy, possibly leading to interest rate cuts in the future.
An advance estimate suggests that GDP may stall in January, with early signs indicating a contraction in the manufacturing sector. Statistics Canada cautioned that these estimates are subject to revision.