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Trick, No Treat: Canadian Economy Shrinks in August

Canadian Economics

By: Viktor Cicman

    

Real gross domestic product (GDP) decreased 0.3 per cent month-over-month in August, mostly offsetting the increase of 0.3 per cent in July. This was the fourth decrease in five months.

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  • The decline was primarily driven by the goods-producing sectors, which contracted by 0.6 per cent in August and have been trending downward for most of 2025.
  • Transportation and warehousing posted a sizable drop, falling by 1.7 per cent. A major contributor to this was a work stoppage involving 10,000 flight attendants, which began mid-month and resulted in widespread flight cancellations, significantly impacting air transportation activity.
  • After three consecutive monthly increases, wholesale trade fell by 1.2 per cent, driven by an 8.3 per cent decline in motor vehicle and parts wholesale. The slowdown in the subsector coincided with weaker trade volumes, as both exports and imports of motor vehicles and parts fell during the month.
  • Mining, quarrying, and oil and gas extraction contracted 0.7 per cent in August, the first decline in three months. Support activities for mining, and oil and gas extraction fell, as rigging and drilling activity contracted in August. Mining and quarrying (except oil and gas) contracted 1.3 per cent in August, driven by a decline in metal ore mining and in coal mining.
  • The utilities sector contracted 2.3 per cent in August, as worsening drought conditions weighed on hydroelectricity generation. Electric power generation fell by 2.4 per cent, recording its sixth consecutive monthly decline.
  • One bright spot was the retail trade sector, which expanded by 0.9 per cent in August. There were widespread expansions as 8 out of the 12 subsectors saw increases. Motor vehicle and parts dealers rose by 2.5 per cent in August, marking their second consecutive monthly increase. Growth was driven by higher sales at new and used car dealerships, as well as increased activity in automotive parts, accessories, and tire retailing.

Key insights

With today’s release of GDP by industry data, we see the Canadian economy showing minimal growth in the third quarter, declining by 0.3 per cent in August, following the 0.3 per cent increase in July. In addition, advanced estimates show third-quarter GDP to come in at an annualized rate of 0.4 per cent, narrowly avoiding a technical recession defined as two consecutive quarters of decline. The economy has been weighed down by U.S. and Chinese tariffs, global trade disruptions more broadly, and slowing business and consumer spending. While employment growth jumped in the most recent release for September, the labour market remains fragile, with employment still net negative since July. Overall, we see meagre growth for the Canadian economy to round out the year, with weakness dragging into 2026.

To help stimulate the economy, the Bank of Canada cut its policy rate by another quarter point this month. It cited slower growth and a weakening job market. While the rate cut will provide modest support to the Canadian economy, monetary policy can only do so much as the economy continues to undergo structural change in 2025. In addition, U.S. President Donald Trump recently announced an additional 10 per cent tariff on Canadian imports, on top of existing trade measures. The new tariffs have added to existing economic tensions and are a stark reminder that trade policy remains unpredictable.  This instability will continue to weigh on business and consumer spending, pushing overall growth downward in the coming months.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit The Conference Board of Canada’s Canadian Outlook.

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