Canada’s economy delivered a stronger-than-expected comeback in the third quarter, expanding at an annualized rate of 2.6% as improved trade performance and robust government capital spending helped reverse a tariff-driven downturn earlier in the year.
Statistics Canada reported Friday that real GDP growth far exceeded the Bank of Canada’s forecast and economists’ predictions of just 0.5% growth heading into the quarter. The rebound follows a sharp 1.8% contraction in Q2 after U.S. tariffs took hold—a figure StatCan has since revised slightly lower.
A significantly better trade balance played a central role in the turnaround. Exports posted a modest 0.2% rise from July to September after plunging 7% in the previous quarter, while imports dropped 2.2%, their sharpest decline since late 2022, providing a major lift to overall GDP.
Government capital spending was another major driver, buoyed by an 82% surge in spending on weapon systems compared to the previous quarter. Meanwhile, the resale housing market showed renewed momentum, countering a slowdown in construction.
Not all segments contributed positively. Household spending weakened—particularly due to fewer purchases of passenger vehicles—and manufacturers accumulated inventories at a slower pace. StatCan also noted added uncertainty around its Q3 estimates due to data gaps caused by the recent U.S. government shutdown, which disrupted usual customs reporting.
Monthly data offered a mixed picture. Real GDP grew 0.2% in September, offsetting August’s slight decline. Manufacturing led September’s gains, while transportation and warehousing rebounded as travel activity picked up following last month’s Air Canada flight attendants strike.
However, early estimates point to a softer start to the fourth quarter, with StatCan forecasting a 0.3% GDP decline for October as oil and gas extraction, education services, and manufacturing appear to weaken.
The Q3 results arrive ahead of the Bank of Canada’s final interest rate decision of the year on December 10—an announcement economists will be watching closely as the central bank gauges the strength and durability of Canada’s economic recovery.
