Canadian Economy Strikes Out, Says Rosenberg Research

09:14 AM EST, 11/03/2025 (MT Newswires) -- The confident view that the Bank of Canada was done cutting rates for good had some water thrown in the face on Friday, as real gross domestic product contracted by a "hefty" 0.3% month over month in August, which came as a negative surprise to the flat performance penciled in by the consensus community, and wiped out the advance posted in July, said Rosenberg Research.

Even without the depressing impact on transportation services from the flight attendants' strike, the economy still would have dropped more than 0.2% month over month, noted Rosenberg Research.

This was the fourth decline in the past five months for Canadian real GDP, taking the year-over-year trend down from what was an already "pathetic" +1.0% pace in July to a "nearly microscopic" +0.7% in August, stated Rosenberg. That is far weaker than even the BoC's newly revised lower estimate of potential growth, and blazes the trail for lingering idle economic capacity that is part and parcel of a disinflationary backdrop, irrespective of what the flawed CPI reports have to say on the matter.

Not only that, but the "super-soft" year-over-year trend in real GDP masks what has happened so far in 2025 with all the tariff damage, because from January to August, the Canadian economy has actually dipped at a 0.4% annualized rate, it pointed put. The comparable trend this time last year was +2.4%, so in a classic case of "pushing on a string," the BoC's cumulative 275bps of rate relief has done nothing, of yet, to prevent what can only be described as a moribund macro environment.

The last time the Canadian economy contracted to any degree over such a time frame was back during the pandemic scare period in September 2020. Before COVID-19, Rosenberg had to go all the way back to the summer of 2015 to see the last time the local economy was this weak for so long.

Back then, the policy rate was 0.75%, for those who believe that today's 2.25% level will prove to be the cycle trough -- the futures market is priced for the BoC to stay on the sidelines right through to the fall of 2026.

The fact that one of the most rate-sensitive sectors of the economy, residential construction, dipped for the first time since last February -- Rosenberg thought this would be telling the BoC if it has done too much or not enough.

As far as sectors are concerned, there was a widespread soft underbelly to the report, according to Rosenberg. Industrial production was clocked for a 0.8% month-over-month loss and that was the fourth contraction in the past five months.

Things were hardly bullish this time last year, when the annual trajectory was running at +0.6%, but that has now swung to -1.1%, and the level of activity is lower today than it was in the opening months of 2022. The service sector shrank by 0.1% and has been roughly flat or down in each of the past four months.

The Statistics Canada estimate for September is a tepid 0.1% month-over-month rebound, which means that for Q3 as a whole, real growth rang in at the grand total of a 0.4% annualized gain. Given the loss of momentum, Rosenberg is seeing, the BoC's prediction of a recovery to a +1.0% pace into year-end is looking "tenuous" at best.

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