Canada's Q4 GDP contracts by 0.6% on an annualised basis

Canada's economy contracted in the fourth quarter, coming way below expectations, as manufacturers heavily dipped into their inventories to meet demand instead of producing fresh goods, data showed on Friday.

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Gross domestic product contracted at an annualised pace of 0.6% in the October-December quarter, Statistics Canada said, compared with a revised 2.4% increase in the prior quarter.

This brings the country's overall growth in 2025 to 1.7%, the slowest pace of annual growth since the decline in 2020, StatsCan said.

Analysts had forecast the GDP to be flat in Q4.

Even though exports, household spending and government investment aided growth, it was not enough to offset the big dent caused by the impact of inventory drawdown last quarter.

Businesses withdrew C$23.46 billion from their inventories at an annualized pace, almost matching the Q4 2024 number when companies raced to beat incoming US tariffs by supplying products from inventories.

The companies had been actively adding to their inventories in the previous two quarters before the fourth quarter, StatsCan said.

The Bank of Canada had projected economic growth of about 1.7% for the year and expected fourth-quarter growth to be flat.

Statistics Canada revised the annualized third quarter growth downward to 2.4% from 2.6% previously, and upwardly revised second quarter contraction to 0.9% from 1.8% on an annualized basis.