GDP rebounds despite pressure from U.S. tariffs
Canada’s economy expanded at a faster pace than anticipated in the third quarter, driven by higher crude oil exports and increased government spending. Gross domestic product grew at an annualized rate of 2.6%, according to data from Statistics Canada, avoiding a technical recession after the previous quarter’s revised contraction of 1.8%. The result exceeded economists’ forecasts and reinforced expectations that the Bank of Canada will leave rates unchanged on December 10.
The GDP calculation is based on national income and expenditure figures, and the final number may be subject to revision in early 2026 due to delayed U.S. merchandise trade data. Analysts had projected just 0.5% growth for the quarter, reflecting ongoing concerns about tariff impacts and slowing domestic demand.
Exports and public spending offset weak investment
Despite the strong headline number, signs of weakness persist. Business investment was flat and household consumption fell 0.1%, as uncertainty over U.S. tariffs weighed on sentiment. The statistics agency noted that U.S. trade measures have already led to job losses and reduced hiring in several sectors, creating expectations of near-recessionary conditions.
However, crude oil and bitumen exports rose 6.7%, contributing to higher corporate income and cushioning the broader economic drag. Government capital spending increased 2.9%, boosted by investments in weapon systems, hospitals and non-residential infrastructure. Residential resale activity and renovations also provided support, even as new home construction slipped 0.8%.
Outlook mixed heading into fourth quarter
Monthly GDP grew 0.2% in September, in line with forecasts, helped by a 1.6% rise in manufacturing output. But a preliminary estimate signals a potential 0.3% decline in October, suggesting a weak start to the final quarter of the year. Economists say the results are strong enough to “quash recession chatter for now” as domestic demand stabilizes.
The Bank of Canada has held its key policy rate at 2.25% and stressed that future decisions will depend on material changes in the outlook. The data also showed the Canadian dollar strengthening 0.34% to 1.3982 per U.S. dollar, while yields on two-year government bonds rose to 2.402%.
