Canada’s GDP fell 0.3% in August, but early estimates show slight growth in Q3—raising hopes the country avoided recession despite ongoing tariff pressures.
August slump hits output
Canada’s economy contracted 0.3 per cent in August, unexpectedly reversing the 0.3 per cent growth recorded in July, according to Statistics Canada. This marks the fourth monthly drop in five months and wipes out growth so far in the current quarter.
Industries driving the decline
Both goods and services sectors weighed on the downturn. On the goods side, manufacturing slid 0.5 per cent while mining, quarrying and oil-and-gas extraction fell 0.7 per cent, including a 1.2 per cent drop in metal-ore mining and a 5 per cent fall in coal mining. On the services side, transportation and warehousing (affected by an airline strike) and wholesale trade pulled back, though retail trade and real estate helped mitigate the drop.
Early signs of quarter-end recovery
Despite the August decline, preliminary data suggest the economy could rebound modestly in September. An advance indicator shows monthly GDP may expand 0.1 per cent in September, which would translate to annualized growth of approximately 0.4 per cent for the third quarter—enough for Canada to avoid a technical recession (defined as two consecutive quarterly contractions).
Trade tensions still weighing
The contraction follows a sharp 1.6 per cent drop in the second quarter, driven largely by tariffs on steel, cars, lumber and aluminium, and broader trade uncertainty that hurt exports. The manufacturing sector—about 10 per cent of GDP—is especially exposed to U.S. tariffs. The weakening in extraction and manufacturing underscores how external trade pressures are still hampering Canada’s economic performance.
What this means for policy
With the economy showing signs of a potential rebound yet still fragile amid external headwinds, the Bank of Canada will be watching closely. Its recent forecast for Q3 growth stood at around 0.5 per cent. While avoiding recession is positive, the modest pace of growth and persistent external vulnerabilities may limit the central bank’s options and adjustment room.
Outlook: how Canada moves forward
Looking ahead, growth largely hinges on a firmer September and recovery in sectors hit by trade and labour disruptions. Should monthly output rebound as the advance indicator suggests, Canada will likely escape a recession. But persistent global trade tensions, weak manufacturing and extraction output, and spotty service-sector strength mean that the road to sustained growth remains bumpy.
