Industrial capacity utilization

Industrial capacity utilization in Canada is projected to average 79.0% in 2026, representing a 1.2% jump from the previous year. This level indicates an industrial sector operating with considerable spare capacity, sitting about 6.8% below the historical peak of 85.8% reached in 2005. Recent StatCan data points to improving momentum, with third-quarter 2025 utilization rising to 78.5% from 77.6% in the prior quarter. Higher engineering construction activity, including a rebound in large-project/build-out work, lifted construction utilization by 1.3% in the third quarter. Manufacturing utilization also increased 1.2% to 77.8% in the third quarter, led by petroleum and coal product manufacturing and transportation equipment manufacturing.

The past five years have featured significant volatility in capacity utilization as pandemic disruptions gave way to an uneven recovery. Capacity recovery was robust in 2021, with utilization climbing 5.2% to 79.9% as lockdowns lifted and pent-up demand surged, though this still left capacity usage below pre-pandemic levels. Utilization then edged up to 81.0% in 2022 before retreating in subsequent years as high interest rates dampened demand and investment activity.

The 2023–2025 period saw capacity utilization decline steadily, reflecting the cumulative impact of monetary tightening on industrial demand. Utilization fell 1.1% to 80.1% in 2023 and declined another 1.9% to 80.1% in 2024 as manufacturers faced weak export demand, elevated input costs and softening domestic consumption. Ontario's goods-producing sectors were particularly hard hit, with output falling at the steepest rate since the pandemic as condo construction collapsed and auto manufacturing facilities closed for electric vehicle retooling. The resulting slack in industrial capacity reflects both cyclical demand weakness and structural shifts toward services and away from goods production.

Current capacity utilization remains substantially below pre-financial-crisis norms, with the 2021–2026 average of 79.5% standing 5.1 percentage points below the 2000–2007 average of 84.5%. This persistent underutilization indicates the industrial sector has maintained excess capacity for an extended period, suggesting significant room for production expansion without triggering capacity constraints or inflationary bottlenecks. However, this spare capacity also reflects structural challenges, including weak productivity growth, reduced manufacturing competitiveness and the sector's diminished share of overall economic output.