Trump is a drag, in every sense of the word
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Uncertainty in Canada’s trade landscape is having negative impacts on the economy, with GDP contracting by 0.3% in August and rebounding only slightly in September, Statistics Canada reported.
The slump in August was driven by a 0.6% contraction in the goods-producing sector and a 0.1% drop in services, the first such decline in six months. August’s figures offset most of the growth delivered in July.
“The Canadian economy was no treat in August amid a few special factors and the ongoing drag from trade/tariff uncertainty,” Benjamin Reitzes, Managing Director at BMO, said in a research note. “While those one-time factors should reverse, and the Blue Jays playoff run will likely provide a lift to October, the economy is expected to struggle until there’s more certainty on trade.”
“Next week’s federal budget has the potential to boost the outlook, but we’ll reserve judgment until we see the full suite of measures,” Reitzes said.
Slightly scared
Andrew Grantham, senior economist at CIBC, said while GDP appears to have returned to growth in the third quarter, “policymakers may be slightly scared by the apparent lack of momentum” heading into the fourth quarter, given the central bank expects a modest acceleration of GDP growth to 1% in the last three months of the year.
“We still expect the Bank of Bank of Canada to remain on the sidelines, but GDP growth will have to pick up ahead if this hold is going to extend throughout next year as we currently project,” Grantham said.
RBC economist Abbey Xu sees growth improving in 2026, partly on the back of increased government spending, but conditions will remain sluggish in the near term. “Most Canadian exports to the U.S. remain duty free under the exemption for CUSMA compliant trade, but tariffs in targeted sectors of the economy are still high and persistent uncertainty continues to restrain business investment and hiring.”
