Canadian GDP Growth 23% Smaller Than BoC Forecast Just 2 Days Ago

Canada’s economy stumbled in November, with Statistics Canada (StatCan) data showing flat growth. Not much of a drag, but enough that it shaves nearly a quarter of the growth the Bank of Canada forecast just a few days ago. For national data, that’s not noise—it’s a massive gap, and the most likely explanation raises more questions than answers.

Real GDP was unchanged in November, following a 0.3% drop in October. Services grew 0.1% in the month, but it wasn’t enough to offset the 0.3% fall in goods. Goods have been down for 3 out of the past 4 months. Despite declines, people are forgiven if they don’t feel the pressure—10 of the 20 GDP industries grew, the other 10 just bore the brunt of the downturn.  

The finalized numbers for 2025 aren’t out yet, but the agency’s preliminary estimates show 0.1% growth in December. They note the estimate for December suggests the economy shrank 0.1% in Q4, leaving annual growth at just 1.3% for 2025. Better than a contraction, but this is much weaker than the public is being led to believe. 

GDP Tracking 23% Lower Than The BoC Estimate 2 Days Ago

Two days ago, the Bank of Canada (BoC) projected 1.7% GDP growth for 2025. StatCan’s latest preliminary estimate is 1.3%, a shortfall of roughly 23.5%. That’s not just a miss; it’s missing the mark by a Prairie Mile.

The BoC had data for Q1 through Q3, and one month of Q4. Assuming flat growth in Q4 isn’t unreasonable. It’s just 0.1 points from StatCan’s preliminary estimate, well within the margin of error that normally happens between flash and final estimates.  

We’ve been asked to explain our thoughts on this gap. There may be logic behind the gap, but it raises more questions than it answers. 

The BoC May Be Banking On More Upward Revisions To GDP

GDP is measured two ways: by expenditure (demand-side spending) and industry (supply-side output). In theory, they match—every dollar spent in the country is income to someone producing, importing, or providing a service. In practice, they don’t. This gap is called the statistical discrepancy, which StatCan treats as a minor rounding error. 

This time it’s not minor. The BoC’s demand-side estimate has forecast 1.7% growth, while StatCan’s supply-based measure this morning is a 0.4 point gap, almost a quarter of 2025’s growth. That’s not a rounding error, it’s a blind spot. 

StatCan recently made a massive revision to the past few years driven by this discrepancy. More data revealed that households withdrew and spent more savings than they thought. The BoC appears to be betting on a similar upward revision. Not a problem, as long as you’re comfortable with a non-data-dependent central bank, and okay with GDP being nothing more than a placeholder. 

The real problem is the output gap, the difference between real and potential output. Small gaps mean the economy is running hot, suggesting inflationary pressures are building. A wider gap implies slack and excess supply, creating a deflationary pressure. The wider the gap, the greater the support for rate cuts and monetary stimulus. 

The BoC relied on the output gap to support its narrative, despite its Core CPI measures and bond yields screaming otherwise. The rise in bond yields (and mortgage rates) makes more sense in this context, as StatCan found the receipts for more output. The revisions also mean the output gap is smaller than believed, but oh, look—the central bank found a nearly identical amount of economic slack. The economy is better, but it doesn’t matter; their model is correct even if the inputs change. 

Remember that scene where Indiana Jones narrowly escapes death and grabs his hat just in time? In this scenario, the BoC is Indy, and the hat is the deflationary narrative. No matter how close things get, they would rather get closer to death than lose that hat. And yes, in this analogy, the Nazis are still Nazis who want to destroy Indy, but let’s not get sidetracked. 

The BoC is taking the same position again. To reinforce its slowdown narrative, its 2025 growth forecast was revised from 1.2%—pretty darn close to this morning’s estimate—to 1.7% two days ago. They’re simultaneously banking on upward revisions to output, but also assuming their lack of productivity will scale with that revision. 

The central bank’s framework is now being built around Schrödinger’s economy—one that’s simultaneously over and underperforming. It’s a shame they didn’t adopt a more practical framework—like measure twice, cut once.