Canada’s Economy Loses Steam as Manufacturing Slumps Under Trade Pressures

Canada’s economic momentum faded sharply toward the end of 2025, with national output flatlining in November after shrinking the previous month, according to new data released by Statistics Canada.

The agency reported that gross domestic product (GDP) was unchanged in November, following a 0.3 per cent contraction in October. While parts of the services sector managed to post gains, those increases were largely outweighed by renewed weakness in goods-producing industries most notably manufacturing.

Manufacturing output dropped 1.3 per cent in November, led by a steep decline in durable goods production, which fell 1.9 per cent. The downturn was broad-based, affecting transportation equipment, machinery, fabricated metal products, and motor vehicles and parts. Statistics Canada said durable goods manufacturing slipped to its lowest level since mid-2011, excluding the sharp but temporary collapse seen during the early months of the COVID-19 pandemic.

Economists point to rising trade uncertainty as a key factor weighing on the sector. Tariff measures and repeated threats from U.S. President Donald Trump have hit Canadian exporters hard, particularly steel and aluminum producers, lumber companies, and automakers. Additional warnings aimed at Canada’s aviation manufacturing industry have further unsettled business confidence.

Although the full impact of potential new tariffs remains unclear, many firms appear to be delaying investment and hiring decisions. Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, said the latest data show “accelerated weakness” in manufacturing, adding that the economy “ended the year without any momentum to carry into 2026.”

Despite the softness in goods production, several service industries provided some relief. Retail trade expanded by 1.3 per cent in November, rebounding after declines in September and October. Food and beverage retailers led the advance, with sales jumping 2.5 per cent following the resolution of labour disruptions in British Columbia that had previously constrained alcohol sales.

Educational services also rose, up one per cent, as schools in Alberta resumed normal operations after the end of a teachers’ strike in late October. Transportation and warehousing climbed 0.9 per cent, driven largely by a sharp recovery in postal services once job actions were suspended. Canada Post and the Canadian Union of Postal Workers reached an agreement in principle after more than two years of intermittent labour disputes.

Derek Holt, head of capital markets economics at the Bank of Nova Scotia, described the late-year economic picture as “a convoluted mix” of trade pressures, labour disruptions, and other temporary factors, noting that it remains difficult to judge the underlying trend.

Meanwhile, the Bank of Canada kept its benchmark interest rate unchanged at 2.25 per cent this week. Governor Tiff Macklem said policymakers expect modest growth through the end of 2025 and into 2026, even as near-term data remain uneven.

Statistics Canada is scheduled to release the final GDP figures for December on Feb. 27. Based on preliminary estimates, the agency currently expects a modest 0.1 per cent increase, offering a tentative sign that the economy may have begun to stabilize heading into the new year.