Economy stalled in November, may have contracted in Q4 amid manufacturing decline

OTTAWA — A beleaguered manufacturing sector was weighing on the economy heading into the end of 2025, Statistics Canada said Friday.

Real GDP growth was flat in November, rebounding somewhat from a decline of 0.3 per cent in October, the agency said.

StatCan said drops in activity in goods-producing industries were offset by expansion on the services side of the economy.

Manufacturing faced a 1.3 per cent decline in November. StatCan said the output of motor vehicles and parts hit a bottleneck as a global shortage of semiconductors curtailed production at a major auto plant.

TD economist Marc Ercolao said the manufacturing industry is tracking for a 2.5 per cent decline in 2025, which would mark the worst year for the sector in nearly 20 years, outside the COVID-19 pandemic and the global financial crisis.

Ercolao said U.S. tariffs on autos, lumber and various metals weighed on manufacturing activity last year.

“We look for that to partially recover into next year, but overall manufacturing is one of those sectors that is disproportionately dragging GDP down,” he said.

Activity in the wholesale trade sector fell 2.1 per cent in November thanks to the declines in automotive output. The agriculture, forestry, fishing and hunting industries also contracted in the month.

Retail trade expanded 1.3 per cent in November, StatCan said, more than offsetting two previous months of declines.

Various sectors also saw rebounds in November thanks to the end of strikes at Canada Post, Alberta schools and British Columbia liquor stores.

StatCan’s flash estimates suggest real GDP increased 0.1 per cent in December as the manufacturing and wholesale trade sectors returned to growth.

If that early look at the data lines up with next month’s quarterly GDP report, StatCan said the economy would have contracted 0.5 per cent on an annualized basis in the final quarter of 2025.

A contraction in the economy to end 2025 would mark a sharp swing lower from annualized growth of 2.6 per cent in the third quarter. The economy also shrank in the second quarter of 2025 as U.S. tariffs took hold.

Ercolao said TD is still expecting GDP growth to come in flat for the fourth quarter of the year, roughly in line with the Bank of Canada’s updated forecasts from earlier this week.

The monthly GDP by industry figures don’t always capture sharp swings in trade volumes, he noted, but the quarterly GDP by expenditure report does.

With signs net exports were trending positive toward the end of 2025, Ercolao said he expects that will be enough of a tailwind to raise the economy out of negative territory to end the year.

This picture of Canada’s economy isn’t what most economists would consider recessionary — typically that’s marked by two consecutive quarters of GDP declines — but Ercolao said he’s expecting a muted end to the volatile ups and downs that marked 2025.

“Overall, this is tracking the expectation that we’re just not going to see much growth in the fourth quarter,” he said.

BMO chief economist Doug Porter said in a note the economy will struggle to post growth of much more than one per cent in 2026, “with the sluggish hand-off from 2025 as well as the lingering cloud of uncertainty on the trade front.”

Based on the initial estimates, StatCan estimates real GDP would have increased 1.3 per cent last year.

The Bank of Canada said in updated forecasts released earlier this week that it expected growth to be flat overall in the fourth quarter. The central bank expects the economy to recover modestly in 2026.

For a second consecutive decision, the bank held its benchmark interest rate steady at 2.25 per cent on Wednesday.

Porter said the latest GDP figures are not markedly different from the Bank of Canada’s updated projections and will do little to shift the central bank from the sidelines.

Financial market odds of an interest rate cut at the Bank of Canada’s next decision on March 18 stood at just 1.7 per cent as of Friday afternoon, according to LSEG Data & Analytics.

CIBC senior economist Andrew Grantham agreed with Porter, arguing that the Bank of Canada’s policy rate is at a low enough level to give a bit of a lift to a struggling economy.

“Overall today’s data are unlikely weak enough to revive talks for further interest rate cuts by the bank, but it is clear that rates will need to be held at stimulative levels for a while to drive a recovery amid the continued uncertain economic environment,” Grantham said in a note.

Ercolao said the Bank of Canada’s previous interest rate cuts from 2025 will likely offer a lift to the economy in the second half of this year. He said November’s stall and signs of a weak fourth quarter won’t be enough to change the central bank’s outlook.

“It would really take several months of economic activity that undershoots the Bank of Canada’s expectations for them to even consider further rate cuts,” Ercolao said.

This report by The Canadian Press was first published Jan. 30, 2026.

Craig Lord, The Canadian Press