Industrial capacity utilization in Canada - Data and Analysis (1987-2032)

Industrial capacity utilization in Canada is projected to average 79.6% in 2026, representing a 1.5% jump from the previous year. This level indicates an industrial sector operating with considerable spare capacity, sitting about below the historical peak of 85.8% reached in 2005. Activity stumbled early in the year as US tariffs on steel, aluminum, lumber and autos weighed on factory output and many manufacturers delayed investment. Momentum improved in the second quarter, when the economy rebounded on stronger consumer spending, a recovery in housing and a sharp rise in business investment. Resource industries have done much of the lifting, with oil and gas extraction running near record levels and new export routes through the Trans Mountain pipeline and LNG Canada supporting throughput. Manufacturing remains the weak link, with sawmills, primary metals and transportation equipment plants carrying considerable slack. The lapse of the CUSMA renewal deadline and fresh rounds of US tariffs and Canadian countermeasures have clouded prospects for the second half of the year.Capacity utilization has been broadly flat over the past five years, a headline that masks a sharp rise followed by a steady retreat. Utilization surged in 2021 as lockdowns lifted and pent-up demand for goods, housing and commodities filled order books. Rates peaked in 2022 as supply chain bottlenecks and elevated commodity prices encouraged producers to run plants hard, with construction and resource industries operating especially close to capacity.The Bank of Canada's aggressive rate hikes marked a turning point. Higher borrowing costs cooled housing starts and spending on durable goods, while weak export demand and elevated input costs squeezed manufacturers. Utilization declined through 2023 and 2024. Ontario was hit particularly hard as condominium construction stalled and several auto assembly plants went idle for electric vehicle retooling, a transition that laer lost momentum as automakers scaled back their EV plans.Trade policy became the dominant drag in 2025. US tariffs on steel, aluminum, autos and softwood lumber cut deeply into exports and left mills and smelters running well below potential. Producers responded by redirecting shipments to Europe and other markets, while federal support programs, Buy Canadian procurement rules and counter-tariffs cushioned the blow. Uncertainty surrounding the CUSMA review froze capital spending decisions, though interest rate cuts through 2025 provided some relief to domestic demand.Persistent spare capacity also reflects structural challenges. Weak productivity growth, years of underinvestment in machinery and equipment and the shrinking share of goods production in the economy have kept utilization well below the levels of the mid-2000s. Overall, IBISWorld estimates industrial capacity utilization has declined at a compound annual rate of 0.1% over the five years through 2026.