Canada GDP Contracts by 0.2% in Q4

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.

The Canadian GDP declined by 0.4% from the previous quarter in the second quarter of 2025, reversing the 0.5% gain from the earlier period. The quarter’s outcome reflected a sharp fall in exports and weaker business investment in machinery and equipment, partially offset by faster inventory accumulation and stronger household spending. Exports of goods and services declined 7.5%, while imports fell 1.3%. In the meantime, business non-farm inventories accumulated at a much faster pace, adding $30.1 billion to GDP. Still, household spending strengthened (1.1% vs 0.1% in Q1), even as corporate incomes and investment softened and federal revenues fell; government expenditures rose 1.8% in the quarter. On an annualized basis, the Canadian GDP contracted by 1.6%, well below expectations of a 0.6% contraction.