Canada Q4 GDP slips despite strong support from government, but some positive signals
Canada’s 0.6% annualized Q4 GDP decline was slightly weaker than expected and further below a flat BoC projection, and came despite quite strong support from government. Q3 was revised down to 2.4% from 2.6% but this was more than outweighed by an upward revision to Q2 to -0.9% from -1.8%.
Details are mixed with domestic demand at 2.4% looking healthy at first glance. Consumption rose by 2.1% and while led by a 3.1% rise in government consumption household consumption at 1.7% was stronger than weak retail sales had suggested, due to a strong quarter from services.
Gross fixed capital rose by 3.3% but this was fully due to a 20.4% surge from government, extending on gains of 16.5% in Q3 and 9.2% in Q2. Fiscal policy is significantly weighing against the damage done by US tariffs. Business fixed capital fell by 0.2%, though this is the smallest of four straight declines.
With exports up by 6.1% and imports up by only 1.0% net exports contributed positively for a second straight quarter though a sharp hit in Q2 has not been fully reversed. The positive from net exports was more than offset by a sharp negative from inventories and leaner inventories are positive for the 2026 outlook.
The GDP deflator remains quite firm at 0.7% on the quarter (2.8% annualized) though yr/yr growth at 2.4%, unchanged from Q3 is not alarming.
A stronger than expected 0.2% December GDP increase also gets 2026 off to a positive open. Goods and services both rose by 0.2%, goods led by a rebound in manufacturing from two straight declines but a second straight 0.2% rise in services is encouraging, and consistent with strength in service consumption in the GDP detail.
