Eric Herzberg
(Bloomberg) — Canada’s economy has rebounded sharply from the initial damage from the trade war, with the country’s growth momentum shifting toward housing and government spending.
Statistics Canada reported from Ottawa on Friday that Canada’s third-quarter gross domestic product grew at an annualized rate of 2.6%. That was the fastest pace of growth since late last year and more than offset a 1.8% decline in the second quarter as merchandise exports fell sharply.
Economist surveys from the Bank of Canada and Bloomberg forecast quarterly growth of 0.5%.
Canadian government bond yields rose across the board, with the two-year bond yield rising about three basis points to 2.430% as of 8:50 a.m. in Ottawa. The Canadian dollar extended its gains, trading to an intraday high of C$1.3992 per U.S. dollar. Traders continue to expect the central bank to keep interest rates steady on December 10.
The agency said growth was driven by investment in residential structures, driven by housing resales, at an annualized rate of 6.7%. Government investment spending was the other major contributor to the surprising increase, as Ottawa increased spending on weapons systems. This resulted in a 12.2% increase in government capital expenditure.
Canada’s trade situation, while muddled by a lack of data due to the U.S. government shutdown, shows the country’s exports are still a long way from recovering. Exports of goods and services shrank 25 per cent in the second quarter and rose just 0.7 per cent in the quarter as U.S. President Donald Trump’s tariffs hit Canadian trade. Higher exports of crude oil and bitumen led the gains.
Imports fell 8.6%, the biggest drop since 2022, as shipments of unwrought gold, silver and platinum to Canada fell.
At the same time, there is ample evidence that the impact of the trade dispute is spreading as unemployment rises and optimism fades. In the end, domestic demand fell by 0.1%, and household consumption fell by 0.4%, the first decline since 2021. The household savings rate increased slightly to 4.7%.
Business activity also remains weak. Private investment in nonresidential construction, machinery and equipment fell for the second consecutive quarter, to an annualized decline of 4.5%. Businesses also reduced inventories between July and September due to widespread business pessimism, with inventory investment falling by $3.95 billion.
Better-than-expected quarterly earnings were also replaced by weaker year-end results. The agency’s forecast shows industrial gross domestic product fell 0.3% in October.
“Don’t be fooled by the headline growth data. The details show the domestic economy is modestly stagnant, with many sectors either contracting (consumer spending and business investment) or growing only modestly (housing investment, overall government spending),” Charles St-Arnaud, chief economist at Servus Credit Union, said in an email.
“While there is no sign that today’s data will prompt the Bank of Canada to cut interest rates at its December meeting, it suggests that the domestic economy is weaker than they expected.”
Taken together, the data reflect a shift in growth momentum toward housing and the military, which will continue to receive strong support from fiscal and monetary policy. Prime Minister Mark Carney has pledged billions of dollars in military spending to help counter the country’s allies in the North Atlantic Treaty Organization.
Although Bank of Canada Governor Tiff Macklem has said the central bank is reluctant to cut rates further, the benchmark rate is at 2.25%, a slightly stimulating policy that is likely to continue to support the country’s housing market.
“Overall, it was a very noisy report due to the big moves on the trade front, but it solidifies the Bank of Canada’s on-hold situation in December,” Canadian Imperial Bank of Commerce economist Catherine Judge said in a note to investors.
—With help from Mario Baker Ramirez.
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Last modified: November 28, 2025
