Investors parse import‑led growth as weak demand keeps Bank of Canada on hold
Canada just posted a stronger‑than‑expected growth rebound – but it’s being held up by trade swings and defence spending, not healthy domestic demand.
Real GDP grew 0.6 percent in the third quarter of 2025, or 2.6 percent annualized, after contracting 0.5 percent in the second quarter, according to Statistics Canada.
Per capita GDP rose 0.5 percent after a 0.5 percent drop the previous quarter.
StatCan said the gain “was driven by a strengthening trade balance, as imports dropped and exports edged up,” with imports down 2.2 percent and exports up 0.2 percent.
A 6.7 percent jump in crude oil and crude bitumen exports and a surge in government capital investment – including an 82 percent spike in weapon systems spending and more investment in hospitals – did much of the heavy lifting, while household spending and business investment weakened.
Household final consumption fell 0.1 percent, led by a 2.3 percent drop in passenger vehicle purchases, and business capital investment was flat.
Economists are clear the headline masks a softer core.
BNN Bloomberg reports that TD Bank economist Marc Ercolao said the latest figures give “the mathematical impression of growth,” not an actual jump in firms doing business internationally.
He cautioned that trade data should be taken “with a grain of salt” because tariffs and the US government shutdown have distorted the statistics.
Oxford Economics’ Tony Stillo and Michael Davenport told Al Jazeera that “headline growth was flattered by a large drop in imports which masked underlying weakness in domestic demand” and noted that overall final domestic demand was flat in Q3.
On consumers, BNN Bloomberg cites Capital Economics’ Bradley Saunders as saying the drop in household spending was the largest quarterly decline outside the pandemic in almost two decades, and that the combination of weaker consumption, flat business investment and a soft early read on October GDP shows “the economy is struggling for momentum.”
CBC News reports that Andrew DiCapua, chief economist at the Canadian Chamber of Commerce, described the economy as “sickly,” arguing that “households and businesses are still holding back, and the economy hasn’t found the momentum it needs to shift into a higher gear.”
On policy and markets, BMO chief economist Doug Porter wrote, in comments reported by BNN Bloomberg, that the third‑quarter rebound “should quash recession chatter for now,” but said the Bank of Canada is unlikely to change course based on “hit‑and‑miss” details and is likely to stay on the sidelines at its December 10 meeting.
Reuters said the upside surprise has reinforced economists’ expectations that the Bank will hold its policy rate at 2.25 percent, while Al Jazeera also reported that the data strengthened views the Bank will only move again if there is a “significant change in the economic outlook.”
Reuters added that the Canadian dollar climbed to a four‑week high after the release as markets nudged up their expected terminal rate in this cutting cycle.
TD Securities strategists argued that the loonie “looks structurally cheap above 1.40” but needs either stabilizing growth or a trade resolution to close the gap.
