Bank of Canada set to keep interest rate unchanged in December despite surprising improvement in economic growth

Bank of Canada is likely to keep the key interest rate unchanged at its upcoming December meeting, following the release of economic growth data that exceeded expectations but simultaneously revealed ongoing weakness in the fundamentals of the economy, according to an analysis published by Canadian Mortgage Trends.

Strong growth… hiding internal fragility

Canada's GDP recorded an annual growth of 2.6% in the third quarter of 2025—its best performance since the end of last year—after a 1.8% contraction in the second quarter due to a sharp decline in exports.
Despite this improvement, the data indicate that economic momentum remains limited:
Final domestic demand declined by 0.1%, a measure that highlights the economy's performance after excluding the impact of trade.
Consumer spending fell in its first decline since 2021.
Business investment continued to fall for the second consecutive quarter.
Economists described the report as “positive in headline only,” while its details reveal that a large part of the growth is due to increased government investments in military equipment in addition to the recovery in the housing market.

Impact on interest rate policy

Despite the surprising growth, most analysts agree that the Bank of Canada will not change its course in December.
Expectations suggest:
Keeping the interest rate at 2.25%
Postponing any discussion about rate cuts until 2026
Continuing caution due to weak domestic demand and slowing activity at the beginning of the fourth quarter
Analysts in the banking sector, including experts at CIBC and Servus Credit Union, confirmed that the economy is “weaker than it appears,” which will make the central bank avoid any sudden moves that could increase fragility.

Struggling exports… and signs of decline at year-end

Canadian exports also show signs of ongoing weakness, after being severely affected by U.S. tariffs during the second quarter. Despite a slight increase in the third quarter, the data indicate that trade prospects remain unstable.
Preliminary estimates by Statistics Canada expect industrial GDP to decline by 0.3% in October, reinforcing concerns of a new slowdown.

Summary of the economic outlook

Despite the recovery of the Canadian economy in the third quarter, the fundamental pillars of growth—consumption, investment, trade—remain weak. Therefore, experts expect the Bank of Canada to keep the interest rate unchanged, with close monitoring of economic developments in the coming months.