Canada's economy slowed toward the end of 2025, as trade tensions, manufacturing declines, and a weakening job market pulled growth lower, according to new data from Statistics Canada.
GDP Decline in Fourth Quarter
Real gross domestic product (GDP), a broad measure of economic output, declined slightly in the fourth quarter of 2025, falling 0.2 percent. The decrease was driven by weaker production, as businesses drew down existing inventories rather than producing new goods, the agency's spring 2026 report on recent economic developments revealed.
The decline followed a short-lived rebound earlier in the year. For 2025 as a whole, the economy grew 1.7 percent, slower than the 2.0 percent pace recorded in each of the previous two years.
Impact of Trade Tensions
Trade tensions with the United States continued to shape economic performance, with U.S. tariffs on Canadian steel, aluminum, and motor vehicles weighing heavily on exports in affected industries. Overall exports to the U.S. remained well below pre-tariff levels by the end of the year.
At the same time, Canada increased shipments to other global markets, partially offsetting losses. Exports to countries outside the U.S. rose sharply in the second half of 2025, driven by higher shipments of energy products and precious metals. Measured on a customs basis, domestic exports of goods to the U.S. fell by $29.4 billion in 2025, while shipments to other countries rose by $27.6 billion.
Manufacturing Sector Hit Hard
Manufacturing was one of the hardest-hit sectors of the economy, with output declining in industries including machinery, wood products, fabricated metals, and motor vehicles and parts. Semiconductor shortages also disrupted auto production late in the year.
“Manufacturing has gone through a challenging last three years, and a lot of that started before the trade conflict,” said Guy Gellatly, a Statistics Canada analyst and author of the report. “Some sectors have held up pretty well during this period, and other sectors, like aluminum and steel, are obviously kind of feeling the brunt of those tariffs and trade challenges.”
According to Statistics Canada, three in 10 manufacturing businesses said U.S. tariffs had a major negative impact on their operations in the fourth quarter, while one in five reported plans to delay investments or expenditures as a result.
Resilience in Some Areas
Despite weaker goods production, parts of the economy showed resilience. Household spending increased in the fourth quarter, supported by higher spending on rent and financial services. Business investment in machinery and equipment also rose after several quarters of decline.
“It’s obviously been a very difficult and very challenging year for many businesses dealing with the sorts of uncertainty that we’ve faced,” Gellatly added.
