TD Says Canada GDP Shows Stabilization as Diversification, BoC Cuts Remain Key

07:19 AM EDT, 09/29/2025 (MT Newswires) -- Macroeconomic data took a back seat for much of last week in Canada, until the gross domestic product report landed on Friday, said TD.

Earlier in the week, the spotlight was on central bankers and policymakers at the United Nations General Assembly, noted the bank. Both Prime Minister Mark Carney and Bank of Canada Governor Tiff Macklem warned of tectonic shifts reshaping the global economy, urging the country to diversify trade and reduce its reliance on the United States.

Macklem went further, cautioning that tariffs have already hit trade-sensitive industries hard and put the economy on a permanently lower growth path. The latest data offered some encouragement, growth was supported by export-oriented industries. But it also underscored just how much work remains to make trade diversification a lasting driver of resilience, pointed out TD.

Markets, meanwhile, stayed focused on near-term signals. Equity investors were uncertain early in the week. But late strength pushed the index marginally higher, extending gains by 0.1% on the week. Long-term yields climbed, ending nearly eight basis points above where they stood after the BoC's Sept. 17 cut.

The hard numbers showed an economy stabilizing after Q2's trade shock. GDP expanded 0.2% month over month in July, with the advance reading for August suggesting no growth. If September holds steady, Canada would avoid a technical recession, with Q3 growth tracking at an annualized 0.7%,

right in line with TD's forecast. That's still below-trend growth and reflects stabilization rather than renewed contraction.

Encouragingly, the rebound was led by industries hardest hit by falling exports: mining, oil and natural gas, manufacturing, transportation, and wholesale trade. Transportation, in particular, saw a boost from activity tied to the LNG Canada project in Kitimat, built to ship natural gas to Asia rather than to the U.S.

This underscores how diversification beyond the U.S. can generate tangible growth benefits, added the bank. The performance of these sectors also highlights their importance and how vulnerable Canada remains when they turn.

Still, July wasn't all positive. Retail trade and information and cultural services contracted. Retail weakness echoed the previous week's report that pointed to a likely August rebound, but the bigger picture suggests consumers are starting to ease off after driving much of domestic demand this year.

The cooling labor market is part of that story. July's payroll report showed job vacancies slipping to 2.6% of total labor demand, the lowest since early 2017. This signals a weaker hiring appetite, underlying TD's expectation for unemployment to rise to 7.3% by year-end.

Below-trend growth and softer labor demand point to enough slack in the economy to justify another BoC cut in October.

Turning rupture into opportunity will ultimately depend on the Canadian government's ability to reorient the economy toward more diversified and sustainable growth, according to TD.

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