| Consensus | Consensus Range | Actual | Previous | Revised | |
| Quarter over Quarter | -0.2% | -0.4% to 0.1% | -0.2% | 0.6% | |
| Year over Year | 0.7% | 1.4% | 1.6% | ||
| Annual Rate | -0.6% | 2.6% | 2.4% |
Highlights
The Canadian economy contracted at an annualized pace of 0.6 percent in the fourth quarter of 2025, following a 2.4 percent recovery the previous quarter, a weaker showing than the flat reading expected by the Bank of Canada.
On a quarterly basis, real GDP contracted 0.2 percent, as expected by forecasters in an Econoday survey, following a 0.6 percent advance in the previous quarter. GDP per capita was unchanged after rising 0.5 percent in the third quarter.
Despite a weaker performance than the BoC had expected in the fourth quarter, the overall picture remains in line with the central bank's main scenario as Canada's GDP expanded 1.7 percent in 2025, as projected by the central bank, mainly due to lower exports to the U.S., Canada's main trading partner. The economy had not been such a weak since a 5.0 percent contraction in 2020.
In the fourth quarter, the unrounded GDP contraction was 0.604 percent on an annualized basis, led by withdrawals of business inventories after an accumulation in the third quarter. Investments in inventories trimmed GDP by 4.2 percentage points.
By contrast, exports were up at an annualized rate of 6.1 percent, contributing 1.8 percentage points, supported by gold shipments, as was expected by the BoC. Household consumption expenditure increased 1.7 percent after contracting 0.8 percent the previous quarter, contributing 0.9 percentage points to GDP. Government expenditure contributed 0.7 percentage points, as it rebounded at an annualized rate of 3.1 percent.
Investments increased another 3.3 percent in the fourth quarter, following an annualized growth of 2.1 percent the previous quarter. It contributed 0.7 percentage points to the annualized GDP growth. However, business capital formation was down 0.2 percent, with residential structures down 4.4 percent.
Market Consensus Before Announcement
The consensus says the economy stalled in Q4 and shrank at an annualized 0.2 percent.
Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.
Description
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.
GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.
Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.
Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.