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Canada’s economy suffered a notable setback at the end of 2025, contracting by 0.6 per cent in the fourth quarter.
The data released by Statistics Canada on Friday revealed a deeper decline than the 0.2 per cent dip analysts had initially predicted.
This late-year slump brought the total annualised growth for 2025 to 1.7 per cent, marking the country’s slowest economic expansion since the pandemic-driven downturn of 2020.
The primary driver of this stagnation was a sharp reduction in exports to the United States.
Throughout 2025, Canadian industries faced significant hurdles due to the protectionist trade policies and sectoral tariffs reintroduced by President Donald Trump upon his return to office.
These measures hit the auto, steel, aluminium, and lumber sectors particularly hard, resulting in both decreased output and domestic job losses as trade friction mounted between the two neighbours.
Despite these challenges, some economists pointed to signs of underlying resilience within the Canadian market.
Desjardins economist Royce Mendes noted that the economy managed to navigate a period of “global chaos” relatively well, considering the scale of the trade headwinds.
A major stabilising factor was that 85 per cent of US-Canada trade remained tariff-free, as the Trump administration largely adhered to the existing free trade agreement signed during his first term.
Looking forward, the Bank of Canada and market experts are closely monitoring whether this fourth-quarter contraction is a temporary blip or the start of a more prolonged downturn.
While the 1.7 per cent annual growth figure reflects a resilient foundation, the ongoing reliance on a volatile US trade relationship remains a central concern for policymakers heading into 2026.
