Blog

Canada’s economy grew at a much faster pace than expected in the third quarter as crude oil exports and government spending boosted economic activity, data shows, even as business investments and household consumption disappointed due to the lingering uncertainty over United States tariffs.

Third-quarter annualised gross domestic product (GDP) grew 2.6 percent, Statistics Canada said on Friday, escaping what could have been a technical recession after a contraction in the previous quarter of a downwardly revised 1.8 percent.

Recommended Stories

list of 4 itemsend of list

The data strengthened economists’ view that the Bank of Canada will not cut interest rates on December 10.

The quarterly GDP reading is calculated based on income and expenditure, unlike the monthly GDP, which is derived from industrial output.

The statistics agency said the third-quarter number could be subjected to a larger-than-normal revision in February because foreign merchandise trade data was not available due to the recent US government shutdown.

Analysts polled by the Reuters news agency had forecast annualised growth of 0.5 percent in the third quarter and monthly GDP growth of 0.2 percent in September.

On a month-over-month basis, the economy matched analysts’ predictions following a deceleration of an upwardly revised 0.1 percent in the prior month, StatsCan said, primarily driven by a 1.6 percent expansion in manufacturing output.

However, an advance estimate showed GDP might decline by 0.3 percent in October, signalling a negative start to the fourth quarter.

“Headline growth was flattered by a large drop in imports which masked underlying weakness in domestic demand as households and businesses spent less,” Tony Stillo, head of Canada Economics at Oxford Economics, and senior economist Michael Davenport, said in comments emailed to Al Jazeera.

“We still think the Canadian economy is in a fragile position and expect it will struggle to grow in the near term amid US tariffs, elevated trade policy uncertainty, and much slower population growth.”

Tariff hit

US tariffs on critical sectors have hit Canadian exports hard. They have resulted in job losses, dampened hiring and subdued business and consumer sentiment, leading to forecasts of a near-recessionary environment.

But a 6.7 percent increase in crude oil and bitumen exports, along with a 2.9 percent increase in government capital investments, helped cushion some of the impact, and higher crude oil exports also helped boost corporate income in the third quarter, StatsCan’s data showed.

An increase in spending on weapon systems and nonresidential structures, such as hospitals, led the jump in government investments.

A rise in residential resale activity and renovations also helped.

The report “should quash recession chatter for now”, Doug Porter, chief economist at BMO Capital Markets, wrote in a note.

The Bank of Canada said last month that it will keep its key interest rate on hold at 2.25 percent and take action only when there is a significant change in the economic outlook.

The underlying impact of tariffs, however, continues to be reflected in business and consumer sentiment, the GDP data showed.

Business capital investment was unchanged in the third quarter, and household final consumption expenditure dropped 0.1 percent.

New residential construction also declined 0.8 percent in the period, StatsCan added.

“Overall final domestic demand was flat in Q3, so the stronger-than-expected rebound in headline GDP more so reflects a mathematical boost from falling imports rather than underlying economic strength,” warned Stillo and Davenport.