UBS Says Canada's Q4 GDP Was Not as Bad as It Looked; Sees Bank of Canada on Hold

12:02 PM EST, 03/02/2026 (MT Newswires) -- Canadian real gross domestic product contracted by 0.6% quarter-over-quarter in Q4 on an annualized basis versus the consensus for 0.2% decline, said UBS.

Friday's GDP report was held down by an inventory drawdown as consumption improved, wrote the bank in a note to clients. Investment outside of inventories was roughly neutral and the government continues to boost growth.

Inventory investment took 4.2 percentage points (pp) off the annualized pace of growth in Q4, skewing the print lower than UBS expected. Net exports added 1.5pp to growth on an annualized basis, a little softer than the 4.9pp addition in Q3 but better than the clear downward pressure in the first half of 2025.

The economy expanded 1.7% in 2025, the slowest pace of annual growth since 2020, but it could have been worse given the trade policy uncertainty the economy weathered last year, stated the bank. UBS expects that policy uncertainty will continue to weigh on the outlook for the economy, but resilience continues.

The bank projects the economy will grow 1.7% this year and 1.8% in 2027. With a little bit of composition shift under the hood, UBS thinks investment should improve, but consumption likely weakens given slower population growth weighing on demand.

UBS does not think Friday's data shifts the outlook for the Bank of Canada all that much. The BoC had expectations for a flat print and Friday's report is a little softer. However, given the impact of "noisy" inventory swings, the bank isn't sure the BoC would take much signal for the policy outlook.

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