Canada GDP Contracts in Q2

The Canadian GDP stalled in the first quarter of 2026, holding the 0.2% contraction from the last quarter of 2025, and contrasting with market expectations that it would expand by 0.3%. Consumption expenditure inched higher by 0.2%, slowing from the 0.7% jump in the previous period, with household consumption rising by 0.4% to offset a 0.2% drop in government expenditure. In turn, gross fixed capital formation contracted by 1.1%, the first drop in one year. In turn, the GDP was pressured significantly by a 2.9% increase in imports, particularly for gold and scrap metal. Meanwhile, exports fell by 0.1% despite the surging oil and gas prices during March due to the outbreak of war in the Middle East. Much of the gold imported, in addition to manufactured goods were added to inventory, preventing a second contraction in the Canadian GDP. In annualized terms, Canada's GDP inched lower by 0.1%.

The Canadian GDP declined by 0.2% in the fourth quarter of 2025, following a rise of 0.6% in the previous period. The contraction was driven by a withdrawal of business inventories, as imports edged up (+0.3%) and exports rose (+1.5%). Increased capital investment was driven by government investment in weapons systems, supported by a substantial 45.9% annual rise in expenditures on these systems. Governments likewise increased investment in engineering structures, with notable contributions to GDP growth for the third consecutive year. Meanwhile, business capital investment edged down 0.1%. By contrast, both household consumption (+0.4%) and government capital investment increased, while inventory accumulation turned into withdrawals. On an annual basis, the Canadian GDP grew by 1.7% in 2025, slowing from the previous year’s pace and marking the weakest growth since 2020.

The Canadian GDP rose by 0.6% on quarter in the third quarter of 2025, following a revised 0.5% contraction in the previous period. The expansion was driven by a strengthening trade balance, as imports dropped (-2.2%) and exports edged up (+0.2%). Increased capital investment was driven by government capital spending (+2.9%), supported by a substantial 82.0% rise in expenditures on weapon systems. Governments likewise increased investment in non-residential structures, with notable growth in institutional buildings, including hospitals. Meanwhile, business capital investment was largely unchanged. By contrast, both household consumption (-0.1%) and government spending (-0.4%) decreased, while inventory accumulation also slowed. On an annualized basis, the Canadian GDP grew by 2.6%, rebounding sharply from a revised 1.8% decline in Q2 and well above expectations of a 0.5% rise.