Canada's economy contracted at an annualized rate of 0.6% in the fourth quarter of 2025, marking the slowest annual growth since 2020 at 1.7%.
This downturn was primarily driven by a significant drawdown in business inventories, which offset gains in exports, household spending, and government expenditures. Despite the contraction, the economy showed resilience against the U.S. administration's protectionist policies, with exports to markets beyond the U.S. showing recovery.
Final domestic demand grew, and household consumption remained steady. The Bank of Canada is expected to maintain its policy interest rate, as the contraction did not significantly alter the output gap.
Looking ahead, economists anticipate soft momentum in 2026, with projected growth of around 1.1%, influenced by fiscal measures and potential trade developments with the U.S.
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