Canada’s economy slowed toward the end of 2025, as

trade

tensions,

manufacturing

declines, and a weakening

job market

pulled growth lower, new Statistics Canada data shows.

According to the agency’s spring 2026 report on recent developments in the Canadian economy, real gross domestic product (

GDP

), a broad measure of economic output, declined slightly in the fourth quarter of 2025, falling 0.2 per cent. The decrease was driven by weaker production, as businesses drew down existing inventories rather than producing new goods.

“It’s obviously been a very difficult and very challenging year for many businesses dealing with the sorts of uncertainty that we’ve faced,” said Guy Gellatly, a Statistics Canada analyst and author of the report.

The decline followed a short-lived rebound earlier in the year. For 2025 as a whole, the economy grew 1.7 per cent, slower than the 2.0 per cent pace recorded in each of the previous two years.

Trade tensions with the United States continued to shape economic performance, with U.S. tariffs on Canadian steel, aluminum and motor vehicles weighing heavily on

exports

in affected industries. Overall exports to the U.S. remained well below pre-tariff levels by the end of the year.

At the same time, Canada increased shipments to other global markets, partially offsetting losses. Exports to countries outside the U.S. rose sharply in the second half of 2025, driven by higher shipments of energy products and precious metals.

Measured on a customs basis, domestic exports of goods to the U.S. fell by $29.4 billion in 2025, while shipments to other countries rose by $27.6 billion.

Manufacturing was one of the hardest-hit sectors of the economy, with output declining in industries including machinery, wood products, fabricated metals, and motor vehicles and parts. Semiconductor shortages also disrupted auto production late in the year.

“Manufacturing has gone through a challenging last three years, and a lot of that started before the trade conflict,” said Gellatly. “Some sectors have held up pretty well during this period, and other sectors, like aluminum and steel, are obviously kind of feeling the brunt of those tariffs and trade challenges.”

According to Statcan, three in 10 manufacturing businesses said U.S. tariffs had a major negative impact on their operations in the fourth quarter, while one in five reported plans to delay investments or expenditures as a result.

Despite weaker goods production, parts of the economy showed resilience. Household spending increased in the fourth quarter, supported by higher spending on rent and financial services. Business investment in machinery and equipment also rose after several quarters of decline.

Labour market conditions improved late in 2025 before weakening again in early 2026. Employment rose between September and November 2025, led by gains in Ontario and Alberta, before stabilizing at year-end. However, job losses of 109,000 were recorded in the first two months of 2026, concentrated in Ontario and Quebec.

The national unemployment rate stood at 6.8 per cent at the end of 2025. Youth continued to face difficult labour market conditions, with unemployment remaining above 13 per cent.

Headline inflation climbed above two per cent in late 2025, largely due to a roughly four per cent increase in grocery prices during the second half of the year. However, falling energy prices helped offset some of that pressure, bringing overall inflation down to 1.8 per cent by February 2026.

According to Gellatly, despite ongoing trade tensions, there has not been a major shock to household finances or balance sheets, although experiences vary widely across households.

Household net worth increased as equity markets strengthened, although household debt levels edged higher. As a result, the debt-to-income ratio increased slightly, although lower interest rates helped ease the cost of servicing that debt.

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