Canada’s economy posted stronger-than-expected growth in the third quarter, expanding at an annualized pace of 2.6% and easily outperforming forecasts from the Bank of Canada and private-sector economists.
Analysts had anticipated a modest 0.5% increase in GDP. Instead, Statistics Canada reported Friday that the rebound was fueled largely by a sharp improvement in the trade balance, driven by falling imports and a modest rise in exports. Government capital spending also contributed, while business investment was essentially flat.
Douglas Porter, chief economist at BMO, cautioned that the headline number masks softer underlying demand. “The big story was a powerful upswing from net exports, driven mostly by a pullback in imports rather than strength in exports,” he said, calling the overall result “a pleasant surprise.”
The Q3 gain follows a contraction in the second quarter, meaning the economy narrowly avoided slipping into a technical recession — defined as two consecutive quarters of negative growth.
But fresh data suggests the momentum may not last. A preliminary estimate for October shows GDP declined 0.3%, raising concerns that the economy may underperform the Bank of Canada’s forecast for 1% annualized growth in the fourth quarter. “Absent a sharp rebound in November, growth is on track to fall short,” said Bradley Saunders, North America economist at Capital Economics.
The Bank of Canada cut its policy rate by 25 basis points to 2.25% in October and has signaled it is prepared to pause further easing if the economy evolves as expected. CIBC economist Katherine Judge said she anticipates the central bank will hold rates steady in December, noting that domestic demand remains sluggish and exports have yet to recover meaningfully from earlier trade disruptions.
Canada’s trade picture improved in the third quarter as imports of goods and services fell 2.2% while exports edged up 0.2%, following a steep 7% decline in the previous quarter. Government capital expenditures rose 2.9%, supported in part by higher spending on weapons systems. Residential investment also posted gains thanks to stronger resale activity, although new construction continued to contract, slipping 0.8%.
Judge said she expects growth to remain subdued through year-end before strengthening in 2026, assuming progress on renewing the Canada-United States-Mexico Agreement and a recovery in business confidence.
