Canada’s Economic Growth Outpaced Forecasts in Late 2025, RBC Says

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Canada’s Economic Growth Outpaced Forecasts in Late 2025, RBC Says

Canada’s economy grew faster than expected in the fourth quarter of 2025, according to a recent report from RBC Economics, signaling resilient momentum despite global headwinds.

What the RBC Report Shows

RBC’s analysis, released in early 2026, indicates that Canada’s real GDP expanded at an annualized pace of 2.1% in the final three months of 2025, exceeding both RBC’s own forecast of 1.8% and the consensus estimate of 1.9% among private-sector economists.

The outperformance was driven by stronger-than-anticipated consumer spending and a rebound in exports, particularly in energy and agricultural products. Business investment also contributed positively, rising for a second consecutive quarter as firms responded to improved demand and easing supply chain pressures.

RBC economists noted that the growth was broad-based across sectors, with services industries leading the way, while manufacturing showed modest gains. The report highlighted that the labour market remained tight, with employment gains averaging 30,000 per month during the quarter, supporting household incomes and spending.

Why It Matters for the Canadian Economy

The better-than-expected growth figure has important implications for monetary policy. The Bank of Canada, which had been widely expected to cut its policy rate in early 2026, may now hold rates steady, as the economy shows less slack than previously assumed.

RBC’s report suggests that the output gap—the difference between actual and potential GDP—may have closed sooner than anticipated, reducing the need for further stimulus. This could keep borrowing costs higher for longer, affecting mortgages, business loans, and government debt servicing.

For households, the news is mixed: stronger growth supports job security and wage gains, but it also means mortgage rates may not fall as quickly as hoped. For businesses, the outlook is generally positive, with improved demand conditions and a more predictable policy environment.

Risks and Uncertainties

Despite the upbeat data, RBC cautioned that risks remain. Global trade tensions, particularly the threat of new U.S. tariffs on Canadian goods, could weigh on exports in 2026. Additionally, high household debt levels and the lagged impact of previous rate hikes may dampen consumer spending in the coming quarters.

The report also noted that productivity growth remains weak, which could limit the economy’s long-run potential. RBC economists emphasized that sustained gains in output per hour worked are needed to support rising living standards without fueling inflation.

Conclusion

Canada’s fourth-quarter growth exceeding forecasts is a positive sign for the economy, but it also complicates the policy outlook. While the near-term picture is brighter than expected, structural challenges and external risks remain. RBC’s report underscores the importance of monitoring incoming data and policy decisions closely in the months ahead.

FAQs

Q1: What was Canada’s GDP growth rate in Q4 2025?
According to RBC Economics, Canada’s real GDP grew at an annualized rate of 2.1% in the fourth quarter of 2025, surpassing both RBC’s own forecast of 1.8% and the consensus estimate of 1.9%.

Q2: What drove the stronger-than-expected growth?
The growth was driven by robust consumer spending, a rebound in exports (especially energy and agricultural products), and a second consecutive quarter of rising business investment.

Q3: How might this affect interest rates in Canada?
The stronger growth may lead the Bank of Canada to hold its policy rate steady, as the economy shows less slack than previously thought. This could keep borrowing costs higher for longer than some had expected.

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