Decrease reversed previous quarter’s gain; overall GDP growth slowest since 2020: report
Canada’s economy ended 2025 on a weaker note than expected, as real gross domestic product fell 0.2 per cent in the fourth quarter after a 0.6 per cent increase in the previous quarter, according to a Statistics Canada report.
The quarterly dip translates to a 0.6 per cent contraction at an annualized pace, a widely-used way of expressing what the quarterly performance would look like if it continued for a full year. StatsCan said the decline was largely driven by businesses drawing down inventories after building stock earlier in the year.
The figures add to evidence that employers may be heading into 2026 facing softer top-line conditions, even as labour-related pressures persist. StatsCan said GDP per capita was unchanged in the fourth quarter, following a 0.5 per cent increase in the third quarter.
Household, government spending offset some decline
Despite the quarter’s overall contraction, several components pointed to continued pockets of demand. Household spending rose 0.4 per cent, led by financial services, while exports increased 1.5 per cent and imports edged up 0.3 per cent. Government capital investment also helped offset some of the decline, and total capital investment rose 0.8 per cent in the quarter, supported by higher government investment in weapons systems.
StatsCan also reported the household saving rate was 4.4 per cent in the fourth quarter, down from 5.2 per cent in the previous quarter, as growth in disposable income lagged spending in nominal terms.
Looking at the full year, real GDP rose 1.7 per cent in 2025, which StatsCan described as the slowest pace of annual growth since the decline in 2020. The agency said lower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025, with exports down 1.7 per cent for the year even after increases in the second half.
Some optimism from Canadian businesses
While the economic report is backward-looking, StatsCan’s separate Canadian Survey on Business Conditions for the first quarter of 2026 offers a more immediate read on employer expectations. Nearly one in five businesses said they expect sales to increase over the next three months, while 14.8 per cent anticipated a decrease. About 23.2 per cent expected selling prices to rise over the same period.
The survey suggested cost pressures are easing only slightly. StatsCan reported 59.2 per cent of businesses expected cost-related obstacles over the next three months, down from 61.2 per cent in the fourth quarter of 2025, while 25.3 per cent said recruiting skilled employees would be an expected obstacle.
The agency framed those expectations against recent macro signals, noting that consumer inflation rose 2.3 per cent year over year in January 2026 and employment edged down by 25,000 that month, with the employment rate slipping to 60.8 per cent.
