Canada's GDP stalls for the month of November

Key Concepts

• GDP (Gross Domestic Product): The total monetary or market value of all final goods and services produced within a country’s borders in a specific time period.
• USMCA (United States-Mexico-Canada Agreement): A free trade agreement governing trade between the three countries, replacing NAFTA.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield. 100 basis points equals 1%.
• Fiscal Stimulus: Government spending and tax cuts designed to boost economic activity.
• Trade Tensions/Tariffs: Government taxes imposed on imported or exported goods, leading to uncertainty and potential economic disruption.
• Weighted Average Tariff: The average tariff rate, calculated by weighting each tariff by the value of the goods it applies to.

Canada's Economic Outlook: A Stalled Growth Trajectory

The Canadian economy experienced stalled growth in November, with weakness in the goods-producing sector being a primary contributor. This follows a period of economic struggle influenced by ongoing trade tensions and uncertainty. Robert Kavik, Senior Economist and Director of Economics at Beimo, discussed these challenges and the outlook for the coming years.

November GDP & Q4 Performance

November’s GDP reading was flat, failing to meet estimates. While retail growth in November may have been driven by holiday spending, the overall fourth quarter is projected to show minimal, potentially negative, growth. Kavik emphasized a “choppy nature of activity” throughout 2025 and into early 2026, reflecting significant economic uncertainty. The Canadian economy is currently operating “below the speed limit” and below its potential growth rate.

Consumer Spending & Interest Rates

Despite economic headwinds, Canadian consumer spending has remained relatively resilient. This is partially attributed to a 275 basis point reduction in interest rates throughout late 2024 and most of 2025, creating a more favorable environment for consumers. While mortgage renewals represent a potential challenge, Kavik believes Canadian households, with their strong balance sheets, are well-positioned to manage these renewals, and consumer spending is expected to continue growing, albeit modestly.

Impact of Tariffs & USMCA

The initial round of tariffs implemented last spring has largely been absorbed by the Canadian economy, largely due to the protections offered by the USMCA agreement. However, tariffs on auto parts, steel, and aluminum remain significant. The more substantial issue isn’t necessarily the economic impact of the tariffs themselves (estimated at a 5 percentage point increase in the weighted average tariff), but the uncertainty surrounding future trade rules. Kavik stated, “It’s really hard to go out there and make big hiring decisions or big capital spending decisions when you don’t know what those rules of the game are going to be.” This uncertainty is expected to continue until clarity emerges from potential renegotiations of USMCA, particularly after July.

Business Investment & Trade Renegotiations

The lack of clarity regarding future trade relations is significantly impacting business investment. Kavik suggests that even if a trade agreement is reached, uncertainty could persist, potentially locking Canada into a flatter economic growth trajectory, particularly on the business investment side. He noted the unpredictable nature of political factors, referencing Donald Trump’s tendency to change positions, even on agreements like USMCA.

2026 Economic Projections

Despite the challenges, both Stats Canada and Beimo project economic growth in Canada for 2026, around 1.5%. This growth is expected to be supported by continued consumer resilience, a significant wave of fiscal stimulus (including recent additions like increased GST rebates), and a stabilizing job market. While trade uncertainty and a stagnant housing market remain concerns, these factors are not expected to completely derail economic progress. Kavik stated, “we do think we’re still, you know, grinding out economic growth here, even if it’s not, you know, especially robust.”

Logical Connections

The discussion flows logically from an analysis of recent economic data (November GDP) to a broader assessment of the factors influencing Canada’s economic performance. The conversation then pivots to the impact of trade tensions and the uncertainty surrounding future trade agreements, ultimately leading to projections for economic growth in 2026. The interplay between consumer spending, interest rates, fiscal stimulus, and trade policy is consistently highlighted.

Synthesis/Conclusion

Canada’s economic growth is currently facing significant headwinds, primarily stemming from trade uncertainty and weakness in the goods-producing sector. While consumer spending remains relatively strong and fiscal stimulus is providing support, the lack of clarity regarding future trade relations is hindering business investment and limiting the potential for robust economic growth. The outlook for 2026 is cautiously optimistic, with projections for modest growth, but the trajectory remains heavily dependent on resolving trade uncertainties and maintaining consumer confidence.