A surprise October contraction put more distance between policymakers and their next rate move
Canada’s economy contracted more sharply than expected in October, a setback that appeared to have strengthened the case for the Bank of Canada to keep interest rates steady at its next decision rather than move toward the hike markets have been eyeing for 2026.
Statistics Canada reported that real gross domestic product fell 0.3% in October, erasing September’s 0.2% gain and marking the largest monthly drop in almost three years.
Both goods‑ and services‑producing industries pulled back. Goods output declined 0.7%, while services edged down 0.2%.
Manufacturing led the slide with a 1.5% drop, including a 6.9% plunge in machinery output and a 7.3% fall in wood product manufacturing after new United States lumber tariffs took effect on October 14.
Postal and education services were also hit by nationwide Canada Post stoppages and an Alberta teachers’ strike.
StatCan’s flash estimate showed GDP growing 0.1% in November, suggesting the downturn has not yet morphed into a technical recession, but the run of weak data places the central bank in a tighter corner.
Governor Tiff Macklem already warned that he expected “GDP growth to be weak in the fourth quarter” and described the economy as “resilient overall” but facing “elevated uncertainty” from US tariffs and global trade tensions.
Tiff Macklem, governor of the Bank of Canada, says the benchmark rate at 2.25% is “about the right level” to support modest growth while keeping inflation near target, despite trade-related uncertainties. https://t.co/S6UDcxRehn
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 17, 2025
Market pricing before the report has pointed to the Bank’s next move being a 25‑basis‑point hike, most likely in July 2026. That call now looks less assured.
For mortgage professionals, the question is whether softer growth would force the Bank to pivot sooner than markets have assumed.
October’s GDP setback appears less like a one‑off and more like another data point pushing policymakers toward a longer hold, and eventually, a cautious easing path, rather than a return to tightening.
For lenders and brokers already navigating thinner volumes and more conservative underwriting, the next Bank of Canada move looks further away, but the direction, once it came, is now more likely down than up.
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