Canada’s economy failed to grow for a second consecutive month in August, and Statistics Canada’s advance estimate for September points to a 0.1% contraction. The outcome lands below the Bank of Canada’s own projections just 48 hours after the central bank’s first rate hike since 2023.
Statistics Canada reported Friday that real gross domestic product was essentially unchanged in August. A 1.4% drop in wholesale trade and a 0.2% fall in the public sector aggregate, its first decline in six months, outweighed gains in retail trade, manufacturing, and construction.
Should the advance September estimate hold, third-quarter annualised growth would reach only 1.3%, against the Bank of Canada’s own 2% forecast.
The Bank raised its overnight rate to 2.50% on October 28, framing the move as risk management against energy-driven inflation. Friday’s GDP data offers a pointed counterpoint.
Benjamin Reitzes of BMO says the Bank of Canada's first rate hike in more than three years may not be its last, with future decisions likely hinging on economic growth, inflation trends, and incoming data over the months ahead.
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 29, 2026
Retail and manufacturing hold the line
Retail trade gained 1.2% in August after contracting in July. Manufacturing rose 0.3%, its fifth increase in seven months, despite continued exposure to US tariffs. Construction added 0.2%.
Against those gains, utilities fell 0.4%, led by a 0.5% decline in electric power generation.
Public administration retreated as 2026 census preparation wound down. Mining, quarrying, and oil and gas extraction were flat.
What the shortfall means for December
Money markets are currently pricing in a hold at the Bank of Canada’s December 10 meeting, followed by a further 25-basis-point increase to 2.75% in January. Friday’s figures complicate that picture.
Marc Ercolao, economist at TD Economics, said the report missed in more than one direction.
“This was a disappointing report relative to expectations and, more importantly, Statistics Canada’s guidance for September looks no better,” he said.
“Taken together, that leaves real GDP growth in the third quarter tracking around 1.3% annualized — still positive, but notably below the Bank of Canada’s recent projection.”
For mortgage brokers monitoring what the BoC’s next decision means for the mortgage market and advising clients through an increasingly complex renewal environment, the gap between growth momentum and Bank projections has become a defining tension heading into year-end.
That concern sits alongside the broader unease felt across the industry since Canada’s rate hike deepened broker worry over a struggling housing market.
Ercolao went further on the Bank’s 2027 outlook.
“For the Bank of Canada, today’s report may cast a little more doubt around the durability of the recovery heading into 2027,” he said.
“The Bank’s latest outlook anticipates a meaningful strengthening in growth next year, but signs of softer momentum heading into Q4 raise the bar for that forecast, particularly with trade uncertainty and higher energy costs still clouding the outlook. While the Bank remains focused on upside inflation risks following this week’s rate hike, weaker underlying growth could complicate the case for further tightening in the near-term.”
The pattern echoes the two straight quarters of GDP contraction in the first half of 2026 that had brokers watching the Bank’s every move, and the second half of the year has yet to deliver the rebound either the Bank or the broker community had anticipated.
Source CMP
By Liezel Once
