Canada GDP Dips, Gold Shines on Fed Cut & Trade Hopes

By MD Rubel islam: Global Finance News

"October 31, 2025 · 8:58 PM GMT+6 · Updated 

Canada’s GDP shrinks 0.3% in August as both services and goods sectors weaken; economists see hope from Fed rate cuts and trade optimism.

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The main point 

"Canada GDP slowdown deepens as August contraction raises recession risk, but September growth estimate and federal budget may boost economic recovery, gold rises on Fed cut and trade hopes."

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Canada’s GDP Contracts in August but May Dodge Recession in Third Quarter

Canada GDP Overview: Economic Slowdown Deepens

Canada’s economy faced another setback in August GDP, with output contracting by 0.3%, according to Statistics Canada (StatsCan). The latest data shows that both the services sector and the goods sector declined, signaling a broader economic slowdown.

However, despite the contraction, economists suggest that Canada’s GDP might still avoid slipping into a recession in the third quarter, as a modest September growth estimate points to a possible rebound of 0.1%.

GDP Contraction: What Happened in August

• The drop in August GDP marked the fourth monthly contraction in five months, erasing the small growth seen in July. A sharp decline in industrial output—including manufacturing, mining, and oil & gas extraction—was the primary drag on the economy.
• Manufacturing sector contracted by 0.5%, mainly due to weaker exports and ongoing U.S. tariffs.

• Mining, quarrying and oil & gas extraction fell by 0.7%, driven by a 1.2% decline in metal ore mining and a 5% drop in coal output.

• Within the services sector, transportation and warehousing slowed significantly due to an airline strike, while retail trade and real estate & leasing provided partial relief.

These numbers indicate that Canada’s economic performance remains fragile, even as global trade uncertainty continues to weigh heavily.

Signs of Hope: September Growth Estimate

Despite August’s contraction, StatsCan’s advance estimate for September growth at 0.1% offers a glimmer of optimism. If this estimate holds true, Canada’s Q3 growth could reach 0.4% annualized, allowing the economy to avoid a technical recession—defined as two consecutive quarters of negative growth.

This slight uptick suggests that the Canadian economy still has resilience, driven by stability in consumer spending and steady retail trade activity.

The Bigger Picture: Recession or Recovery?

Economists remain divided. Oxford Economics Senior Economist Michael Davenport warned that “Canada’s economy is on the precipice of a recession,” citing weak business confidence and slowing investment.

However, other analysts believe that a strong federal budget next week could boost spending, support domestic demand, and provide short-term stimulus to economic recovery.

The current economic outlook thus hinges on policy measures and how effectively they can revive industrial activity and improve quarterly growth momentum.

Gold Rises on Fed Cut, Trade Hopes

Amid growing global uncertainty, gold prices have risen as investors react to the U.S. Federal Reserve’s rate cut and renewed trade optimism. This trend has directly influenced market sentiment in Canada as well, particularly as a weaker Canadian dollar makes gold investments more attractive.

The rise in gold often reflects investor caution during periods of economic slowdown, making it a key indicator of risk-averse behavior in the financial markets.

Impact on Canadian Dollar and Financial Markets

Following the GDP report, the Canadian dollar (CAD) weakened further—trading down 0.27% to 1.4022 per U.S. dollar (USD). Meanwhile, bond yields on two-year Canadian government bonds slipped by 1.5 basis points, reflecting growing investor caution.

Financial markets interpreted the GDP contraction as a sign of slowing momentum, increasing the likelihood that the Bank of Canada might consider further rate adjustments to stimulate growth.

Sector-by-Sector Breakdown

Manufacturing Sector

The manufacturing sector remains one of the hardest hit, suffering from U.S. tariffs, global trade tensions, and lower export volumes. Accounting for nearly 10% of Canada’s GDP, this sector’s struggles have been a major drag on overall output.

Mining, Quarrying & Oil and Gas

The mining sector contracted sharply, reflecting weaker global commodity prices. The oil & gas extraction industry saw reduced activity amid lower demand and declining prices, further hurting industrial output.

Services Sector

The services sector—Canada’s largest contributor to GDP—suffered from disruptions in transportation, warehousing, and wholesale trade. Nonetheless, retail trade and real estate & leasing helped offset some losses, supported by resilient consumer spending.

Government Response: Federal Budget and Policy Outlook

Economists are eyeing the upcoming federal budget, expected to introduce spending incentives and stimulus programs to support growth. A targeted approach focusing on manufacturing, energy, and infrastructure investment could improve Canada’s economic outlook and avoid recession in the short term.

Such fiscal measures, combined with cautious monetary policy, could encourage economic recovery and stabilize employment levels across key sectors.

International Trade and Tariff Challenges

Trade uncertainty continues to cloud Canada’s growth prospects. Persistent U.S. tariffs, slowing global demand, and weakened export markets have collectively suppressed output.

A resolution of key trade disputes could revive exports, strengthen manufacturing, and enhance market reaction, driving renewed confidence in the Canadian economy.

Future Outlook: Can Canada Avoid Recession?

While the near-term risks remain, there’s cautious optimism that Canada’s GDP will rebound slightly in September and deliver modest Q3 growth.

Key indicators to watch include:

• Consumer spending and retail sales data

• Industrial output recovery

• Federal budget measures

• Inflation and interest rate trends

If these elements align positively, Canada could successfully avoid recession and set the stage for sustained recovery in 2026.

Final Thoughts: Balancing Risk and Resilience

The Canadian economy stands at a crossroads—balancing between economic slowdown and a potential recovery phase. With targeted fiscal support, improved trade conditions, and resilient consumer behavior, Canada GDP could return to positive momentum in the coming months.

As the global environment stabilizes, Canada’s eco

nomic performance in late 2025 will determine whether this slowdown is merely a pause or the beginning of a deeper downturn.

Read more details  Canada GDP dips, recession fears ease