Canada: No Tricks and No Growth in August

Real GDP wasn’t exactly a thriller in August, staying flat for a second consecutive month, but it certainly spooked economic forecasters. The goods-producing industry edged higher (0.1% m/m), with various offsetting changes across sectors. Under the hood, the manufacturing sector saw its fifth expansion in seven months (0.3%), on the back of gains in machinery and petroleum products manufacturing. In contrast, resource extraction was unchanged in the month, as increases in mining and quarrying were offset by lower activity in oil and gas extraction. Not to be left out, construction activity advanced too (0.2%), for the fifth month in a row. Lastly, utilities fell (-0.4%) as some nuclear power plants experienced maintenance outages.

Meanwhile, the aggregate services-producing industries posted a modest decline (-0.1%). Retail trade External link. rebounded in August (1.2%), largely reflecting increased activity in motor vehicle and parts. Transportation and warehousing expanded (0.5%) as rail transportation activity experienced its largest monthly growth rate since March 2025 (3.6%). Finance and insurance saw a broad-based expansion in the month as well (0.2%). On the other hand, wholesale trade (-1.4%) weighed on growth, reflecting decreased activity in most subsectors. Public administration also declined further (-0.8%), largely reflecting a wind-down of census-related activities

The August print resulted in a modest decline in Canada’s real GDP per capita. Nevertheless, slower population growth External link. has helped it recover some of its earlier losses (graph 2).Text

Our tracking suggests real GDP growth of around 1.5% annualized in Q3 2026. This is below the Bank of Canada’s 2.0% forecast in the October 2026 Monetary Policy Report. That said, substantial historical revisions in recent years warrant caution when interpreting the signal coming from monthly GDP data, as suggested by our research External link.. Additionally, the weak economic momentum at the end of Q3 sets Q4 up for a potential further underperformance as well.

The August GDP figures showed an economy stuck in low gear as Canada–US trade tensions escalate. Our latest outlook External link. suggests higher US tariffs are weighing down growth and the labour market. However, retaliatory tariffs could push prices higher while elevated energy prices add more fuel to the inflationary fire. The Bank of Canada raised its policy rate in their latest announcement External link., citing a higher inflation outlook and increasing inflation expectations. Despite today’s GDP miss, central bankers will likely remain focused on incoming inflation pressures, reinforcing our expectation of a rate hike in December.