Canada’s economic growth is expected to slow further in the fourth quarter, raising concerns about another interest rate hike by the Bank of Canada in December. Economists noted that the economy grew by 1.3% on an annualized basis in the third quarter, falling short of the Bank of Canada’s projected 2%. This follows Statistics Canada’s report that real GDP was flat in August and contracted 0.1% in early September.
Douglas Porter, chief economist at BMO Financial Group, attributed the soft GDP figures to the US-Canada trade dispute and the winding down of 2026 census activity. He highlighted that while manufacturing and construction saw gains, a 0.8% drop in public sector activity offset these improvements. Porter cautioned that growth has encountered ‘some pretty serious headwinds’ and is unlikely to rebound in the fourth quarter, though he noted that the cooldown may be somewhat overstated.
Bradley Saunders of Capital Economics described the 1.3% growth as ‘far below’ the Bank of Canada’s forecast and even lower than their own pessimistic estimate of 1.5%. He reinforced the view that the next rate hike is unlikely until 2027. Meanwhile, Marc Ercolao of TD Economics called the report ‘disappointing’ and warned that it could cast doubt on the durability of the economic recovery heading into 2027.
Andrew Grantham of CIBC Capital Markets suggested that the latest GDP results indicate weaker momentum than anticipated, supporting the Bank of Canada’s decision to hold off on further interest rate hikes for now. The data highlights ongoing challenges, including trade uncertainty and higher energy costs, which could complicate the central bank’s inflation management strategy.