Canada's economy contracted at an annualized rate of 0.6% in Q4 2025, marking a sharp reversal from the previous quarter's 0.6% expansion. Statistics Canada data revealed inventory drawdowns were the primary drag on growth. While government capital investment surged 45.9% year-over-year, driven by weapons spending, manufacturing output fell 1.5%, burdened by U.S. tariffs.

Household consumption remained resilient at 2.3% for the year, though wage growth slowed to 3.9% annually. The TSX faces headwinds from this contraction, though December showed some late-year momentum. This volatile performance underscores the economy's fragility despite pockets of strength in mining and construction.