Statistics Canada reported real GDP was essentially unchanged in August, prompting debate over the timing of the Bank of Canada’s next rate hike.
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Statistics Canada said Friday that real gross domestic product was essentially unchanged for a second straight month in August, coming in below economists’ expectations for a 0.2 per cent gain and earlier agency estimates.
The report also showed wholesale trade fell 1.4 per cent in August as most subsectors contracted. StatCan said motor vehicle and vehicle parts wholesalers saw their first decline in seven months, citing lower vehicle imports and weaker manufacturing activity in the subsector.
StatCan attributed a 5.8 per cent decline in motor vehicles and parts manufacturing in August to what it described as a “prolonged summer shutdown at a major auto assembly plant.”
Tu Nguyen, chief economist at RSM Canada, said the August declines in these sectors would only partially reflect impacts of a breakdown in trade talks between Canada and the United States that month. Both sides have since imposed new waves of tariffs and trade restrictions, and Nguyen said sectors such as manufacturing and wholesale trade remain vulnerable to tariff disruptions.
Other factors in StatCan’s report included ongoing work to prepare the 2026 census, which it said was still winding down and drove widespread contractions in public administration. The agency also said maintenance work at some nuclear power plants and mining facilities in northern Alberta dragged on growth in August.
While retail trade, manufacturing as a whole, and transportation and warehousing posted gains to offset the August declines, StatCan’s early estimates for September indicated real GDP fell 0.1 per cent, driven by losses in manufacturing and mining, quarrying and oil and gas extraction.
StatCan’s flash estimates continue to show real GDP expanding 1.3 per cent on an annualized basis in the third quarter, down from 3.3 per cent growth in the second quarter. The agency said it will provide its official quarterly estimates for the third quarter next month when it reports the September GDP figures.
The latest data arrived two days after the Bank of Canada raised its benchmark interest rate by a quarter point to 2.5 per cent, its first hike in more than three years. Bank officials said the move was warranted to get ahead of looming inflation risks, pointing to signs of resilience earlier in the year.
The Bank also revised up its expectations for third-quarter growth to 2.0 per cent on an annualized basis, up from 1.5 per cent in its July forecasts. Many economists responding to Friday’s release said those more optimistic projections may be at risk after StatCan’s data suggested middling growth.
BMO chief economist Doug Porter said in a note to clients that some weakness last quarter might be overstated, particularly as it relates to census-related slowdowns, but wrote that the combination of trade headwinds, housing struggles and recent employment figures suggested growth faced serious challenges.
BMO, which had been aligned with the Bank of Canada’s call for 2.0 per cent third-quarter growth, trimmed its outlook to 1.5 per cent after the August GDP report. Andrew Grantham, senior economist at CIBC, said the August data suggested the economy was “already struggling for momentum even before this week’s interest rate hike.”
Grantham said the weak GDP results supported a pause from the Bank of Canada at its final rate decision of the year in December, while noting there is additional economic data before that meeting.
Financial market odds of a hike on Dec. 9 stood at 57 per cent as of Friday morning, according to LSEG Data & Analytics. Nguyen said it was a “coin flip” whether the Bank would hike in December or at its next meeting in January, adding that she leaned toward a second quarter-point hike sooner rather than later.
Nguyen said a “25-basis-point hike, one month apart, whether in December or in January, I don’t think would change too much in terms of growth trajectory.”
Despite the recent stumbles, Nguyen said there are reasons for optimism tied to government spending priorities on major projects and tax incentives for business investment that she said should support the economy in 2027. The Bank of Canada is expecting a further slowdown in the fourth quarter before growth reaches 2.0 per cent in 2027 and 2028, according to its outlook described in Friday’s report.
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