The Canadian economy declined 0.2% in November as the country faced a hefty 25% US tariff on its exports, which could take effect as early as this Saturday. That decline followed a 0.3% expansion in October. Even with a projected 0.2% rebound in December, analysts note that the implied quarterly growth of 1.6% (annualized) falls short of the Bank of Canada’s 1.8% estimate.
The November decline marked the largest monthly contraction since December 2023, with 13 of 20 sectors of the economy shrinking, according to a Statistics Canada report. The decline was more pronounced (0.6%) in the goods-producing industries, led by mining, quarrying, oil and gas extraction, and utilities. Meanwhile, services-producing industries slipped by 0.1%, their first decline after five consecutive months of growth, largely driven by a downturn in the transportation and warehousing sector.
Below is commentary from economists’ notes to clients about the November GDP report.
Stephen Brown, deputy chief North America economist at Capital Economics
“The larger-than-expected decline in GDP in November and flash estimate of only a moderate rebound in December suggest that growth was 1.6% annualized last quarter, a little lower than we and the Bank of Canada estimated. Our forecasts point to a stronger first quarter, but it will be a different story if President Trump follows through with his threat to impose a 25% tariff on imports from Canada this weekend.
“The latest flash estimate that GDP rebounded by only 0.2% m/m in December is disappointing, implying that GDP stagnated over November and December as a whole. That is a weaker result than we expected. It implies that quarterly growth was 1.6% annualized, compared to our estimate and that of the Bank of Canada at 1.8%, and also presents a downside risk to our view that growth will accelerate to more than 2% this quarter. That said, the far bigger concern is that Trump will follow with his threat by either imposing or announcing tariffs on Canada tomorrow. If a 25% tariff were left in place, it would almost certainly lead to a recession.”
Andrew Grantham, senior economist at CIBC Economics
“Canada is facing a major hurdle from potential US tariffs, and today’s data suggests that the economy was already stumbling on the approach to that hurdle. November GDP posted a 0.2% decline, which was a tick worse than the advance estimate, and was essentially only just reversed by a modest gain in December’s advance estimate ... We continue to suspect that the Bank of Canada will need to cut interest rates further to close the current slack in the economy, even if the worst-case tariff scenario is avoided.
“Overall, the economy appears to be in reasonable (albeit not great) health, and clearly risks to the future outlook have intensified due to the tariff threats. The lack of economic momentum towards the end of last year, and the negative impact of potential tariffs on the future outlook, both lean towards further interest rate cuts from the Bank of Canada.”
Benjamin Reitzes, managing director, Canadian rates, and macro strategist at BMO Economics
“Canadian real GDP fell 0.2% in November, a tick worse than the flash estimate and consensus call. A sizeable 1.6% pullback in mining, oil, and gas drove the downside surprise. There were a couple of special factors as well, with the postal and port strikes weighing on the activity. Utilities were also weak due to milder weather. Those three sectors accounted for most of the decline, but 13 of 20 sectors were down in the month. One special factor on the positive side was the Taylor Swift Eras tour boosting hospitality and arts/entertainment/recreation.
“Statistics Canada’s early estimate for December GDP is +0.2%, with retail activity providing a big helping hand due to the tax holiday. However, there was weakness in housing, transportation/warehousing, and wholesale.
“Not much to see here for monetary policymakers with Q4 GDP landing right on their forecast. November was soft, but there were a few special factors weighing that will reverse over the next two months. This is all old news, though, as everyone is on Tariff Watch at the moment. That’s all that matters near-term, whether we like it or not.”
Marc Ercolao, economist at TD Bank
“It’s steady as she goes for domestic growth developments, as recent data comes in more or less in line with expectations. With November GDP data and December guidance, growth in the fourth quarter is tracking on point with the Bank of Canada’s (BoC) most recent projections (1.8% q/q annualized). This would mark a decent acceleration from Q3’s more meager gain of just 1% and provides a decent handoff into 2025, especially given looming uncertainties.
“The Bank of Canada has its work cut out for them. After slashing interest rates this week, they will now wait for further details about Trump’s tariff implementation plan, which will come as early as tomorrow. The Bank acknowledged that past interest rate cuts are starting to boost the economy while inflation is expected to be stable at 2%. However, future policy setting is subject to higher-than-usual uncertainties. While we think the Bank will step to the sidelines at their March meeting, expedited rate cuts may be in the cards should a worst-case trade war ensue.”
Tiago Figueiredo, macro strategist at Desjardins
“The Canadian economy slumped more than expected in November. The weakness was fairly broad-based, with declines in the oil and gas sector, utilities, and transportation and warehousing being the main drags. Labor disputes at the ports of Montreal and Vancouver coupled with the Canada Post strike weighed on growth over the month. These are clearly temporary factors, but GDP growth would have been weaker were it not for Taylor Swift’s Eras Tour.
“Statistics Canada’s flash estimate for December showed that real GDP likely rebounded 0.2%. That rebound appears to be led by retail trade, manufacturing and construction. We are tracking roughly 2% growth for the fourth quarter, in line with the Bank of Canada’s recent estimate, an acceleration from the weak print the prior quarter. Of course, all of that momentum could be halted this weekend if President Trump goes ahead with 25% tariffs on Canadian exports. The market reaction has been limited as market participants are awaiting clarity on trade policy.”
Abbey Xu, economist at Royal Bank of Canada
“The contraction in Canadian GDP in November was largely as expected, and the advance estimate that output increased in December is consistent with the Bank of Canada’s updated forecasts released earlier this week.
“Canadian economic data has looked better in recent months on balance, but business investment in particular remains very soft (another negative for future productivity growth) and the Bank of Canada is likely more worried about looming trade tensions with the Trump administration that are casting a shadow over the growth outlook.
“We continue to think that the Bank of Canada will need to cut interest rates further to support a Canadian economy that is still underperforming other advanced economies with the timing and magnitude of potential US tariffs representing a significant additional downside economic growth risk.”
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