Canada's Economy Stalls in August as GDP Growth Remains Flat for Second Consecutive Month
Canada's real GDP posted no growth in August, missing economist forecasts and signaling a slowdown in the third quarter. Flash estimates point to a contraction in September, with economists at KPMG and Desjardins projecting below-target Q3 growth and anticipating another Bank of Canada rate hike in December.
Canada’s real gross domestic product (GDP) remained flat in August, marking the second consecutive month without growth after a similar stall in July, according to data published Friday by Statistics Canada. The stagnation follows a 0.4 per cent expansion in June and indicates a broader slowdown in economic momentum during the third quarter.
Economists had predicted a 0.2 per cent increase for August, but actual figures showed zero month-over-month growth. Looking ahead, flash estimates from Statistics Canada suggest the economy shrank by 0.1 per cent in September. Lower activity in manufacturing and resource extraction sectors contributed to the weak preliminary reading.
Based on current data, Statistics Canada indicated the economy is tracking toward an annualized growth rate of 1.3 per cent in the third quarter of 2026. This projection falls short of the two per cent forecast outlined in the Bank of Canada’s October Monetary Policy Report.
Sector performance in August was mixed. Wholesale trade contracted by 1.4 per cent month over month, driven by a decline in motor vehicle and parts sales. Conversely, retail trade grew by 1.2 per cent, supported by a rebound among motor vehicle and parts dealers. Manufacturing, rail transportation, and the finance and insurance sectors also recorded growth during the month. While wholesale trade fell in August, flash estimates suggest the sector expanded by 0.5 per cent in September, highlighting conflicting short-term trends.
Economists attribute some of the recent weakness to temporary factors that may make the headline figures appear worse than underlying conditions. However, U.S. tariffs remain a significant headwind. Desjardins economist LJ Valencia linked the weak flash estimates to new 50 per cent levies imposed by the U.S. and subsequent Canadian countermeasures.
Both KPMG and Desjardins project the economy will grow at an annualized rate of 1.5 per cent in the third quarter of 2026. Looking further ahead, both firms anticipate a deceleration. KPMG expects growth to slow slightly to 1.4 per cent in the fourth quarter due to U.S. tariffs and ongoing manufacturing weakness, while Desjardins projects fourth-quarter growth will fall to around 1.1 per cent.
Despite the overall softness, the economy shows signs of resilience in certain sectors. Both KPMG and Desjardins expect the Bank of Canada to deliver another 25-basis-point rate hike in December, which would bring the key interest rate to 2.75 per cent.