Canada's economy stalls as the Bank of Canada starts hiking again

Overview

Updated 1 hour ago

Canada's economy produced the same output in August as it did in July. The month before, output was flat too. Statistics Canada's advance estimate now points to a 0.1% contraction in September, and payrolls fell by 49,600 in August.

Two days before that data landed, the Bank of Canada raised its key interest rate by a quarter point to 2.50%, its first hike since 2023. The bank had projected 2% annualized growth for the third quarter. The industry data track 1.3%. Markets now price a pause in December and another hike in January.

Why it matters

The central bank is tightening into a near-zero-growth economy. If it hikes again in January, mortgage holders and businesses pay more while output is already flat.

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Key Indicators

0.0%

August GDP, month over month

Second straight month without growth, against a forecast of 0.2%.

-0.1%

September advance estimate

Statistics Canada's preliminary read, driven by manufacturing and mining.

1.3%

Q3 annualized growth, industry-based

Below the Bank of Canada's 2% projection for the quarter.

2.50%

Bank of Canada policy rate

Raised a quarter point on Oct. 28, the first hike since 2023.

49,600

Payroll jobs lost in August

A 0.3% drop, reported a day before the GDP release.

3.3%

Q2 annualized growth

The strong quarter the current stall is unwinding from.

Voices

Curated perspectives — historical figures and your fellow readers.

People Involved

Tiff Macklem

Governor of the Bank of Canada

Leading a hiking cycle into a stalling economy

Organizations Involved

Bank of Canada

Central bank

Tightening policy while growth stalls

Canada's central bank, which sets the overnight interest rate and is currently weighing further hikes against weak output.

Statistics Canada

Federal statistical agency

Publishing weak output and payroll data

The federal agency that produces Canada's GDP, payroll and employment figures.

Timeline

July 2026 November 2026

5 events Latest: Today

Tap a bar to jump to that date

November 2026
Official third-quarter GDP due
Upcoming Economic data

Statistics Canada releases the formal quarterly estimate that the 1.3% tracking figure will be checked against.
November 30th, 2026
October 2026
August GDP flat; September seen down 0.1%
Today Economic data

Output is unchanged for a second month; the advance estimate points to a September contraction.
Today
Payrolls fall 49,600 in August
Labour data

The payroll survey shows a 0.3% drop in employees, partly from Census wind-down, with 2.9 unemployed per vacancy.
Yesterday
Bank of Canada hikes to 2.50%
Monetary policy

The central bank raises rates a quarter point, its first increase since 2023, citing inflation and energy prices.
2 days ago
July 2026
Economy goes flat in July
Economic data

GDP stalls after a strong second quarter, with an unplanned refinery outage among the temporary drags.
July 2026

Scenarios

Bank of Canada holds in December, hikes again in January

Likely Resolves by Jan 28, 2027

Discussed by: Money markets, per Reuters

This is what futures markets currently price. The bank pauses in December to read the data, then lifts the rate a quarter point to 2.75% in January on persistent inflation pressure despite flat output.

Bank of Canada pauses through the winter as growth weakens

Possible Resolves by Jan 28, 2027

Discussed by: Economists watching the gap between bank forecasts and industry data

Softer-than-expected third- and fourth-quarter output, plus falling payrolls, convince the bank to stop at 2.50% and wait. A December hold becomes a longer hold as the growth shortfall against the bank's own projection widens.

Growth turns negative and the bank reverses course

Unlikely Resolves by Mar 3, 2027

Discussed by: Forecasters citing Deloitte's warning of sharply weaker growth into 2027

Official quarterly data confirm a contraction, payroll losses deepen, and tariff pressure bites. The bank that just hiked becomes the bank that cuts, unwinding the October increase within a few quarters.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

July 2017 - December 2019

Bank of Canada hiking cycle then pause (2017-2019)

The bank raised rates through 2017 and into 2018 as growth strengthened, taking the overnight rate from 0.50% to 1.75%. By late 2018 it stopped, citing trade uncertainty and slowing global growth.

Then

Rates held at 1.75% through 2019 despite a pause in hikes.

Now

The bank reversed sharply in 2020 when the pandemic hit, cutting back to 0.25%.

Why this matters now

It shows a central bank can hike a few times and then be forced to stop by weaker data, the exact test now facing the 2026 cycle.

June - September 2010

Bank of Canada rate normalization (2010)

The bank raised its policy rate three times in quick succession, from 0.25% to 1.00%, as Canada recovered from the financial crisis faster than its peers.

Then

Hikes stopped in September 2010 as global growth wobbled.

Now

The rate stayed at 1.00% for years, a long pause after a short tightening burst.

Why this matters now

A short hiking burst followed by a long hold is one live path here if the growth stall deepens.