Canadian Economic Growth Stalls in August as September GDP Declines

Canada’s economic growth remained sluggish in August 2026, with real gross domestic product (GDP) unchanged for the second consecutive month. While gains in select industries provided some support, weakness across services and other key sectors continued to weigh on overall economic activity.

Canadian GDP Unchanged in August

According to monthly GDP estimates, Canada’s real GDP was unchanged in August, as a decline in services output offset modest growth in the goods-producing sector.

Retail trade and rail transportation were the leading contributors to growth, increasing by 1.2% and 1.4%, respectively. However, these gains were offset by declines in wholesale trade, which fell 1.0%, and public sector output, which decreased 0.2%.

Other areas of the economy also showed signs of weakness. Residential construction declined 0.2%, marking the sector’s first monthly contraction since March. Meanwhile, output from the offices of real estate agents and brokers fell 1.0% month over month, reflecting continued softness in real estate-related economic activity.

September GDP Estimates Point to Further Weakness

Preliminary estimates indicate that real GDP by industry declined 0.1% in September, suggesting that Canada's economic slowdown continued into the third quarter's final month.

With August recording no growth and September expected to contract, third-quarter economic growth is now tracking at an annualized rate of approximately 1.3%, well below the Bank of Canada's forecast of 2.0%.

The weaker-than-expected performance raises questions about the strength of Canada's economic recovery and the outlook for domestic demand, business investment, and employment in the months ahead.

US Tariffs Add to Canada's Economic Challenges

Looking ahead, the Canadian economy faces additional headwinds in the fourth quarter, particularly from further US tariffs. Increased trade barriers could weigh on Canadian exports, business confidence, and investment, adding pressure to an economy already experiencing limited momentum.

If economic growth continues to undershoot expectations, the outlook for monetary policy could shift. Although the Bank of Canada has already considered economic risks in its recent interest rate decision, weaker-than-anticipated activity could influence its assessment of inflation and growth in the coming months.

Bank of Canada Expected to Hold Rates in December

Despite mounting concerns about economic growth, the Bank of Canada is expected to hold its policy interest rate steady at its December meeting.

A further rate adjustment will depend on incoming economic data, particularly GDP growth, inflation, labour market conditions, and the impact of US trade policy. For now, the combination of stagnant economic activity and heightened trade uncertainty suggests that policymakers may prefer to assess how these risks develop before making another move.

Overall, Canada's economy is showing signs of losing momentum as it enters the final quarter of 2026. With third-quarter growth tracking below the Bank of Canada's expectations and additional trade-related pressures on the horizon, the coming months will be critical in determining the direction of economic growth and interest rates.