Canada’s economy shrank 0.6 per cent at an annualized rate in the fourth quarter of 2025, Statistics Canada said on Friday, as businesses drew down on existing inventories rather than producing more. Analysts had expected real gross domestic product (GDP) for the quarter to shrink by 0.4 per cent, according to consensus estimates published by CIBC Economics.
The Bank of Canada expected flat growth for the quarter, according to projections in its January Monetary Policy Report.
For all of 2025, Canada’s economy expanded by 1.7 per cent, the slowest pace of growth since 2020, Statistics Canada said, citing lower exports, “particularly to the United States” as a key factor.
Real GDP increased 0.2 per cent in December from the previous month, slightly above expectations. The flash estimate for January, Statistics Canada’s projection based on preliminary data, suggests flat growth for the month.
Weaker GDP numbers could increase market odds of the Bank of Canada cutting interest rates by mid-2026, CIBC economist Andrew Grantham wrote in a preview note last Friday. “However,” he added, “policymakers are still attributing much of the weakness in GDP to structural factors, and because of that next month’s labour market data will likely be more important in determining if further rate cuts may be in the cards.”
The economy grew in the third quarter of 2025, at a rate that was revised down in today’s release to 2.4 per cent annualized from 2.6 per cent. Economists largely saw that data as a “mixed bag,” with the jump mainly due to a drop in imports and consumers appearing increasingly cautious.
This story will be updated.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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