Canadian economy stalled in August, points to September decline: StatsCan

Canada’s economic growth stalled in August for the second month in a row, and a decline might be coming in September, Statistics Canada data released Friday showed.

Real gross domestic product was effectively unchanged for the month, following relatively flat growth the month before, in July.

Economists polled by Reuters ahead of the release predicted 0.2 per cent growth for August.

Wholesale trade and the public sector were problem areas. Wholesale trade fell by 1.4 per cent in August as most subsectors contracted. Motor vehicle and motor vehicle parts wholesalers contracted for the first time in seven months, Statistics Canada said, as car manufacturing slid and fewer passenger vehicles were imported.

Public sector activity — including work in things like education services, health care and social assistance — declined as well. Work by the government public administration also contributed most to the decline, as work on the 2026 census wrapped up.

WATCH | Deloitte lowered its growth forecast for next year:

Canada’s economy still resilient, but U.S. trade war taking its toll

Canada’s economy has shown resilience in the face of punishing U.S. tariffs, but new import bans on a range of Canadian products are creating further drag. Accounting firm Deloitte has lowered its growth forecast for next year by 20 per cent.

The mining, quarrying and oil and gas sector was flat, as increased mining and quarrying activity was offset by a decrease in oil and gas production due to maintenance at some facilities.

Retail trade was among the bright spots in the month, posting 1.2 per cent growth and more than making up for a decline in July.

Manufacturing rose for the fifth time in seven months; the transportation and warehousing industry also saw gains in August, as did the finance and insurance sector.

Statistics Canada’s early estimates for September suggest real GDP declined 0.1 per cent in part because of losses in manufacturing and mining, quarrying, and oil and gas extraction.

That September slowness, coupled with flat growth in July and August, points to a trend of weakness in recent months, according to BMO chief economist Doug Porter.

“So much for the momentum that appeared to be building during the spring months, and of which the Bank of Canada cited at length as evidence of the economy’s resilience,” Porter said in a note, referencing economic activity nodded to when the central bank raised interest rates earlier this week.

Porter says some of the weakness might be “overstated” because of the census-related drop, which was a one-off. But with the ongoing trade war and sliding job numbers in recent months, Porter says there are clear reasons the economy would be struggling to grow.

Despite flat growth in July and August and signs of a decline in September, the agency’s flash estimates still see real GDP expanding 1.3 per cent on an annualized basis in the third quarter — a slowdown from 3.3 per cent growth in the second quarter.

But that’s lower than the two per cent growth that the Bank of Canada was predicting for the third quarter in its monetary policy report released Wednesday.

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What the new 2.5% interest rate means for Canadians

After holding interest rates steady for almost a year, the Bank of Canada has raised the policy rate to 2.5 per cent. Bank governor Tiff Macklem said the hike was necessary to battle inflation driven by rising energy prices.

CIBC economist Andrew Grantham said that while the bank was already predicting some slowing in the fourth quarter of 2026, today’s data shows that economic momentum heading into that final stretch might be even weaker than expected.

“Admittedly there’s plenty more data to be released between now and the December meeting,” Grantham wrote in a note to investors. “But today’s release is supportive of the bank holding fire for now on a further interest rate hike.”

The central bank raised its key lending rate at its meeting this week by a quarter of a point, to 2.5 per cent. While some economists predict it could be the start of a cycle of concurrent rate hikes, others say the bank might leave rates at 2.5 per cent, while waiting to see if more are needed.