Stalled Growth in November Points to a Shrinking Canadian Economy

2026-02-01 economy

Ottawa, Saturday, 31 January 2026.
Canada’s economic engine stalled in November 2025, showing zero growth after a decline in October. This stagnation suggests the economy likely shrank during the fourth quarter, performing worse than the Bank of Canada predicted. While service sectors like retail managed a 1.3 percent rebound, they were overpowered by weakness in goods production. The most alarming data point is a 6.4 percent plunge in auto manufacturing, driven by a global semiconductor shortage. With the economy failing to expand for much of late 2025, this data highlights how trade uncertainty and supply chain issues are actively braking national growth.

Manufacturing Slump Weighs Heavily

The industrial sector bore the brunt of the economic slowdown, with total manufacturing output contracting by 1.3 percent in November [1][2]. This decline was particularly acute in durable goods manufacturing, which fell 1.9 percent to reach production levels not seen since mid-2011, excluding the onset of the pandemic [2][4]. A significant factor in this downturn was the motor vehicle and parts subsector, which shrank by 6.4 percent as a persisting global semiconductor shortage forced automakers to curb production [3][5]. Beyond the factory floor, the wholesale trade sector also faced headwinds, posting a 2.1 percent decline—its largest contraction since April 2025 [2][5]. Consequently, the goods-producing industries as a whole decreased by 0.3 percent, marking their third contraction in four months [3][6].

Service Sector Offers Modest Relief

In contrast to the industrial slump, service-producing industries provided a slight economic buffer, edging up 0.1 percent [2][8]. Retail trade emerged as a primary driver of this resilience, expanding 1.3 percent after struggling in previous months [1][4]. Within this category, food and beverage retailers saw a notable 2.5 percent boost, driven in part by higher alcohol sales following labor actions in British Columbia [4]. The resolution of labor disputes elsewhere also distorted the monthly data positively; educational services rose 1.0 percent following the end of the Alberta teachers’ strike, while the transportation and warehousing sector grew 0.9 percent, buoyed by a massive 41.7 percent surge in postal services after job actions were suspended on November 21 [2][4][8].

Fourth Quarter Outlook Darkens

The flat performance in November, trailing a 0.3 percent contraction in October, indicates that the Canadian economy significantly lost momentum closing out 2025 [1][4]. Economists now estimate that real GDP may have contracted by 0.5 percent on an annualized basis in the fourth quarter [1][6]. This projection underperforms the Bank of Canada’s Monetary Policy Report, which had forecasted zero growth for the quarter [5][7]. Excluding a preliminary estimate of 0.1 percent growth for December, the economy has effectively stagnated for five consecutive months since July 2025 [7]. BMO Chief Economist Doug Porter characterized the situation bluntly, noting that the economy ended the year on a “distinctly chilly note” [7].

Uncertainty Clouds 2026 Horizon

While Statistics Canada’s advance estimate suggests a marginal 0.1 percent uptick in December 2025, the broader economic landscape remains fragile [1][3]. The Bank of Canada held its benchmark interest rate steady at 2.25 percent on January 27, 2026, maintaining stimulative levels to support a recovery [1][4]. However, external pressures continue to mount; U.S. tariffs on steel, aluminum, and automotive products have hobbled output, causing businesses to adopt a “wait-and-see” approach regarding investment and hiring [4][5]. With full-year growth for 2025 expected to land at just 1.3 percent [3][5], analysts warn that the sluggish hand-off into 2026 will make it difficult for the economy to post growth significantly above one percent in the coming year [1].

Sources

GDP growth Canadian economy