Canadian economy contracted 0.6% in Q4 to cap volatile 2025: StatCan

Statistics Canada says the economy capped off a volatile year with a contraction in the final quarter of 2025.

StatCan said Friday that real GDP declined 0.6 per cent on an annualized basis in the fourth quarter, falling short of expectations for flat growth from the Bank of Canada and most economists.

StatCan said the main culprit was businesses drawing down their inventories — in other words, selling off goods or materials that weren’t reproduced in the quarter.

Nathan Janzen, RBC’s assistant chief economist, said declining inventories were not necessarily a cause for alarm. Spending was meanwhile rising across the economy last quarter, he explained, a sign that production will ramp up to meet the demand.

“You would be more worried if, say, inventories were building rapidly and spending was falling, in which case it would be a sign the economy was overproducing,” Janzen said.

StatCan said a rise in household spending and increased government capital spending — particularly on weapons systems — gave the economy a lift in the quarter. Business investment, meanwhile, declined thanks to weakness in residential activity.