Real gross domestic product GDP declined 0.2% in the fourth quarter of 2025, after rising 0.6% in the third quarter. The fourth quarter decrease was due to withdrawals of business inventories following inventory accumulations in the third quarter. Offsetting some of the decline was higher exports, household spending and government capital investment. On a per capita basis,GDP was unchanged in the fourth quarter after increasing 0.5% in the previous quarter, according to a report released Friday by Statistics Canada.
Real GDP increased 1.7% in 2025, the slowest pace of annual growth since the decline in 2020. Lower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025, explained the federal agency.
“Businesses withdrew from non-farm inventories in the fourth quarter, after adding to their stock in the previous two quarters. The largest withdrawals in the fourth quarter occurred in the manufacturing sector, followed by the wholesale trade sector. In the retail sector, motor vehicle inventories declined,” said Statistics Canada.
“On an annual basis, businesses withdrew from non-farm inventories in 2025, marking the first annual decline of inventory stock since 2020, during the COVID-19 pandemic. In contrast, the stock of farm inventories rose for the first time in three years, given strong crop production in 2025.
“Exports rose 1.5% in the fourth quarter, after increasing 0.9% in the third quarter. The growth in the fourth quarter was led by higher exports of unwrought gold and of unwrought aluminum and aluminum alloys. Despite the increases in the latter half of the year, exports fell 1.7% in 2025, as shipments to the United States did not fully recover following the drop in the second quarter.
“Imports edged up 0.3% in the fourth quarter, as higher imports of computers, clothing and footwear, and metal ores were largely offset by lower imports of pharmaceutical and medicinal products. For the year, imports were down 0.4% in 2025 due to the 2.9% decline in the third quarter.”
Household spending rose 0.4% in the fourth quarter after declining 0.2% in the third quarter. Higher expenditures on rent and financial services in the fourth quarter were partially offset by lower spending on new passenger vehicles and alcoholic beverages, as overall expenditures on goods declined for a second consecutive quarter, said Statistics Canada.
On an annual basis, household final consumption expenditure was up 2.3% in 2025, keeping pace with the 2.2% growth in each of the previous two years. The rise in 2025 was led by increased household spending on financial services and rent, it said.
“The household saving rate was 4.4% in the fourth quarter, down from 5.2% in the previous quarter, as growth in disposable income (+0.6%) lagged that in spending (+1.2% in nominal dollars). Despite lower net saving in the fourth quarter, the household saving rate was 4.9% in 2025, about the same as in 2024,” added Statistics Canada.
“Household disposable income grew at a slower pace in the fourth quarter of 2025, as did wages and salaries and self-employment income (termed mixed income). Net property income declined 1.7% in the fourth quarter due to a reduction in investment earnings that outweighed lower interest payments. Household investment earnings (termed property income received) declined 1.7% in the fourth quarter, due mainly to lower returns on interest-bearing deposits. Household property income paid, comprised of mortgage and non-mortgage interest expenses, declined by 1.6% in the fourth quarter.”
Andrew Grantham, Senior Economist, CIBC Capital Markets, said: “While consumer spending rose in Q4, that came despite an easing in disposable income growth and therefore was the result of a drop in the household savings rate. Real personal disposable incomes fell for the first time since Q1 2023. Because of this there is some concern regarding how sustainable the pick-up in consumer spending will be.”
Maria Solovieva, Economist, TD, said: “Canada ended the year on a weaker footing as businesses drew down inventories, weighing on headline growth. For 2025 as a whole, the economy slowed to a 1.7%, primarily due to lower exports to the United States. That said, domestic demand grew at a better 2.3% pace, supported by stronger government spending. The rebound in consumption and the return of non-residential investment in the fourth quarter provide some reassurance that underlying demand is stabilizing.
“Still, today’s report is weaker than the Bank of Canada’s January projections for a flat reading, reinforcing their view that momentum remains limited. There is still evidence of labour market slack and inflation gradually moderating. Taken together, these dynamics suggest that the Bank of Canada will remain on the sidelines, and the policy rate at 2.25%.”
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