Canada’s economy is on track to grow very slowly, adding to doubts about whether the

Bank of Canada has cut interest rates enough, economists say. Statistics Canada said Friday August gross domestic product contracted 0.3 per cent month over month, missing estimates for flat growth. The data agency forecasted growth of 0.1 per cent in September in an advanced estimate, putting GDP on track to expand 0.4 per cent annualized in the third quarter.

That will undershoot the Bank of Canada’s forecast for third quarter GDP of 0.5 per cent and some economists worry that the central bank’s forecast for one per cent growth in the final quarter may be too high.

On Wednesday, the Bank of Canada cut its interest rate 25 basis points to 2.25 per cent and said it believed that was the “right level” to control inflation and protect the economy if their forecasts played out.

Here’s what economists said about the GDP numbers and what they mean for the Bank of Canada.

‘Shock’ not as bad as it looks: Capital Economics

“The shock 0.3 per cent month-over-month decline in GDP in August is not quite as bad as it looks,” Stephen Brown, deputy chief North America economist at Capital Economics, said in a note, due to some special events during the month, including an Air Canada flight attendants strike and lower hydro-electric output due to drought.

Nonetheless, Statistics Canada tracked “broad-based weakness” across several areas of the economy, especially in the manufacturing and wholesale sectors, highlighting the effects of tariffs on the economy, he said.

A miss in August and weak outlook for September increase the odds of sluggish growth in the final quarter of the year providing “some support to our view that the economy will underperform the Bank of Canada’s expectations,” Brown said.

Capital said earlier this week that it expects the central bank to trim another 50 basis points in 2026.

‘Spook the Bank of Canada’: BMO

Twelve of 20 sectors contracted in August “as the trade war continues to ripple through the economy,” Benjamin Reitzes, an economist at BMO Capital Markets, said in a note, pointing to weakness in wholesale trade and goods and a drop in all the subsectors of transportation.

August and the estimate for September put the economy on track to nearly match BMO’s and the Bank of Canada’s estimates of 0.5 per cent annualized growth, he said.

The Blue Jays’s playoff run should boost the economy in the fourth quarter, but tariff uncertainty will continue to weigh on growth.

Reitzes said it will take more weakness than this to “spook the Bank of Canada” off the sidelines. “However, this report reinforces our belief that risks remain skewed to the downside.”

Next week’s budget, however, is expected to boost the outlook for growth.

“We’ll reserve judgment until we see the full suite of measures,” Reitzes said.

‘Precipice of a recession’: Oxford Economics

“Canada’s economy is on the precipice of a recession ,” Michael Davenport, senior economist at Oxford Economics Ltd., said in note.

Second-quarter growth in Canada contracted 1.6 per cent annualized and Friday’s GDP data “certainly raises the odds of a technical recession,” Davenport said, as he expects third quarter GDP on an expenditure basis to come in flat.

Two consecutive quarters of negative GDP constitutes a technical recession.

Oxford said the Canadian economy will continue to struggle as it is buffeted by tariff headwinds.

But it doesn’t think this report will matter much to the Bank of Canada since GDP is tracking almost in line with its estimates, and there is more data to come before policymakers meet on Dec. 10.

“We think the BoC will hold rates from here, but there’s a chance of another small rate cut or two if GDP and the labour market weaken more than expected,” Davenport said.

Unreliable estimates: CIBC

“Canadian GDP appears to have returned to growth in Q3, albeit very modest and not strong enough to absorb any of the slack currently present within the economy,” Andrew Grantham, an economist at CIBC Capital Markets, said in a note.

Sectors susceptible to trade including warehousing, transportation, wholesale trade and manufacturing fell the most, leading a broad-based pullback in the month, he said.

Retailing emerged as one of the “few positives,” but estimates for September indicate a pullback there as well.

Grantham said third quarter estimates may be unreliable due to divergences between the monthly sector and quarterly expenditures data caused by “wild swings in trade.”

Statistics Canada also cautioned that quarterly GDP results could be revised due to a lack of U.S. data caused by the government shutdown.

“We still expect the Bank of Canada to remain on the sidelines, but GDP growth will have to pick up ahead if this hold is going to extend throughout next year as we currently project,” Grantham said.

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