Three Bay Street analysts warn Q3 growth is tracking well short of the Bank of Canada’s forecast
Canada’s economy delivered little in August, with real gross domestic product (GDP) essentially flat for a second consecutive month — trailing both market expectations and Statistics Canada’s preliminary estimate of 0.2% growth, raising fresh questions about the Bank of Canada’s decision to raise interest rates last week.
The August result follows a broadly flat July, marking a deceleration from the 3.3% annualized growth recorded in Canada’s second quarter of 2026.
With Statistics Canada’s advance estimate projecting a further 0.1% decline in September, Q3 GDP is now tracking at approximately 1.3% annualized, well below the Bank of Canada’s 2.0% projection in its October 2026 Monetary Policy Report (MPR).
The composition of August was mixed. Retail activity rose sharply, suggesting resilient household spending despite higher borrowing and energy costs.
Manufacturing output and engineering construction also gained, while wholesale trade, public administration, and oil and gas extraction all declined.
Statistics Canada reported no growth in August GDP and an estimated decline in September, suggesting third-quarter growth may fall short of the Bank of Canada’s expectations following its latest interest rate increase. https://t.co/CCruoYeDlc
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 30, 2026
Mixed signals for the central bank
On October 28, the Bank of Canada raised its overnight rate by 25 basis points to 2.50%, its first hike since July 2023. Economists characterized the move as risk management, though softer GDP data complicates that framing.
Marc Ercolao, economist at TD Economics in Toronto, wrote that August’s result “may cast a little more doubt around the durability of the recovery heading into 2027,” noting that softer fourth-quarter momentum “raises the bar” for the Bank’s 2027 growth forecast, “particularly with trade uncertainty and higher energy costs still clouding the outlook.”
Andrew Grantham, senior economist at CIBC Economics in Toronto, offered a blunter take. August data, he wrote, showed that “all of the growth in Q3 came from the strong handoff at the end of the second quarter, and that throughout the period the economy actually stagnated.”
Greater slack, he added, should limit firms’ ability to pass through higher energy costs to consumers — capping core inflation below the Bank of Canada’s own MPR projections.
Abbey Xu, economist at RBC in Toronto, described the August composition as “somewhat better than the headline,” noting that retail resilience and engineering construction gains were consistent with an economy still expanding, “albeit unevenly and at a more moderate pace.”
What the data means for brokers
For mortgage professionals navigating Canada’s mounting 2026 mortgage renewal pressures, the Q3 shortfall arrives at a difficult moment.
Jessica Rickerby, president of the Canadian Mortgage Brokers Association of Ontario (CMBA Ontario) in Toronto, told Canadian Mortgage Professional: “While inflation is a key concern of Ontarians, so is housing affordability. The difference is that affordability is a pressing issue right now, whereas inflation is – at present – a hypothetical.”
With the next Bank of Canada rate decision on December 9, the small-business outlook for Canada’s mortgage market already signals a rougher fourth quarter, and October and November GDP prints will carry unusual weight.
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