The Canadian economy expanded by 2.6% on an annualized basis in the third quarter, according to Statistics Canada’s report released on Friday. This growth helped the country steer clear of a technical recession, primarily driven by a significant increase in defence expenditures.
A notable surge in government spending on military equipment, which rose by 82% during the third quarter, played a key role in the better-than-expected economic expansion, complemented by a rise in crude oil exports. In June, Ottawa committed to allocating 5% of its GDP to defence by 2035, in alignment with other NATO members.
Moreover, there was a notable uptick in government investments in non-residential infrastructure like hospitals. However, business investment remained stagnant during the period, and household spending decreased as fewer individuals bought cars but allocated more funds towards rent and financial services.
Statistics Canada revised the GDP figures for the second quarter from a 1.6% contraction to a 1.8% decline. The agency highlighted that the third quarter GDP numbers may undergo a larger-than-usual revision in February due to data gaps caused by the U.S. government shutdown.
On a monthly basis, GDP expanded by 0.2% in September, as reported by Statistics Canada. The recent third quarter results have dispelled talks of a recession, according to Douglas Porter, the chief economist at the Bank of Montreal, who maintained a growth expectation of 1.4% for the next year, slightly above the federal budget’s forecast of 1.2%.
While recognizing some conflicting signals, Porter suggested that the Bank of Canada is likely to maintain its current stance in the upcoming meeting, given the overall positive economic outlook. In contrast, Andrew DiCapua, the chief economist at the Canadian Chamber of Commerce, expressed a more cautious view, describing the economy as “ailing,” emphasizing the need for stronger domestic demand to drive growth momentum.
Overall, the latest GDP report reflects a mix of positive and challenging trends in the Canadian economy, signaling the importance of sustained economic recovery efforts in the coming months.