Canada’s economy grew faster than expected in the third quarter, data showed, as crude exports and government spending boosted economic activity, while uncertainty over United States tariffs depressed business investment and domestic consumption.
Statistics Canada said Friday that annual gross domestic product (GDP) grew 2.6 per cent in the third quarter, following a 1.8 per cent decline in the previous quarter that could have been a technical recession.
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The data reinforced economists’ view that the Bank of Canada will not cut interest rates on Dec. 10.
Quarterly GDP readings are calculated based on income and expenditure, unlike monthly GDP, which is derived from industrial production.
The statistics agency said the third-quarter numbers may be subject to a larger-than-usual revision in February because foreign goods trade data was not available due to the recent U.S. government shutdown.
Analysts polled by Reuters news agency had forecast annual GDP growth of 0.5 percent in the third quarter and monthly GDP growth of 0.2 percent in September.
On a month-on-month basis, the economy matched analysts’ predictions after an upwardly revised 0.1 percent contraction in the previous month, mainly driven by a 1.6 percent expansion in manufacturing output, StatsCan said.
However, an advance estimate showed that GDP could decline by 0.3 percent in October, indicating a negative start to the fourth quarter.
“The headline growth was offset by a large decline in imports, masking underlying weakness in domestic demand as households and businesses spent less,” Tony Stilo, 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 remains in a fragile state and expect it to struggle to grow in the near term amid US tariffs, increased trade policy uncertainty and very slow population growth.”
Tariff hit
US tariffs on key sectors have severely affected Canadian exports. This resulted in job losses, reduced hiring, and weak business and consumer sentiment, leading to an almost recessionary environment.
But a 6.7 percent increase in crude oil and bitumen exports, along with a 2.9 percent increase in government capital investment, helped offset some of the impact, and higher crude exports also helped boost corporate earnings in the third quarter, StatsCan data showed.
Government investment boomed due to increased spending on weapons systems and non-residential structures such as hospitals.
An increase in residential resale activity and renovations also helped.
“The report should quash recession talk for now,” Doug Porter, chief economist at BMO Capital Markets, wrote in a note.
The Bank of Canada said last month it would keep its key interest rate at 2.25 per cent and would move only if there is a significant change in the economic outlook.
However, GDP data shows that the underlying impact of tariffs continues to be reflected on business and consumer sentiments.
Business capital investment remained unchanged and household final consumption expenditure declined 0.1 percent in the third quarter.
New residential construction also declined 0.8 percent over the period, StatsCan said.
“Overall final domestic demand was flat in Q3, so the stronger-than-expected bounce in headline GDP reflects mathematical growth from declining imports rather than underlying economic strength,” Stilo and Davenport warned.
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