1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 49
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
rates have fallen, yet business confidence remains tepid, with uncertainty holding back capital
investment. We estimate 2025 real GDP growth of 1.7% with a further deceleration to 1.5% in
2026, both below the 2024 growth rate of 2% and the 10-year pre-pandemic average of 2.2%.
In terms of recent data, growth rebounded in the third quarter to post a 2.6% quarter-overquarter seasonally adjusted annualized reading (QoQ), the fastest pace of growth since 4Q24 that
more than offset the prior quarter’s 1.8% contraction. The print also significantly exceeded the
median consensus estimate that called for a much milder growth pickup of 0.5%.
Underlying details were rather soft, however. Household consumption declined by 0.4%, while
government spending fell by 1.7%, effects that were mitigated by a pickup in gross fixed capital
formation (2.3%). By far the biggest contributor however was net trade, which flipped from a
near-9 percentage point (ppt) detractor in 2Q25 to a >3ppt contributor in 3Q. Exports, which had
declined by 25.1% QoQ in 2Q25 due to U.S. trade policy rose slightly by 0.7% in 3Q25, while
imports went from a flat print to an 8.6% decline. Note that imports are a subtraction in GDP
accounting, so a negative imports number would contribute to GDP growth, not detract from it.
GDP rebounded in 3Q as net trade snapped back from the prior quarter’s decline
9%
6%
3%
0%
-3%
-6%
-9%
-12%
4Q24
HH spending
1Q25
Gov't spending
Fixed investment
2Q25
Inventories
Net trade
3Q25
Real GDP (QoQ SAAR)
Source: Statistics Canada, Bloomberg Finance LP, Scotia Wealth Management
Trade related factors have made it challenging to get a read on the economy in 2025. Setting
those aside, final domestic demand, a narrower measure of economic activity that excludes trade
to provide a clearer read of domestic economic conditions declined by 0.1% in 3Q25 to give back
some of 2Q’s robust 3.5% pickup. Over the last four quarters, final domestic demand has
averaged 1.8% QoQ growth, about 1ppt below its long-term average.
Monthly GDP data show the economy has gotten off to a tough start in 4Q, with growth
contracting by 0.3% month-over-month in October and an advance estimate from Statistics
Canada pointing to a subdued 0.1% increase in November that failed to fully offset the prior
month’s decline.
48
