Canada’s economy sees surprise boost in 3rd quarter, avoiding a technical

The Canadian economy grew at an annualized rate of 2.6 per cent in the third quarter, Statistics Canada said on Friday, avoiding a technical recession largely due to a surge in defence spending.

Government spending on weapons systems, up by 82 per cent in the third quarter, led the stronger-than-anticipated growth, alongside an uptick in crude oil exports. Ottawa pledged in June — alongside other NATO countries — to spend five per cent of GDP on defence by 2035.

There was also more government spending on non-residential structures, such as hospitals. However, business investment was virtually unchanged in the third quarter, according to Statistics Canada, and household spending declined as fewer people purchased cars but spent more on recent and financial services.

The data agency revised second quarter GDP figures from a 1.6 per cent decline to a 1.8 per cent decline, and noted that third quarter GDP might be subject to a larger-than-usual revision in February due to missing data from the U.S. government shutdown.

GDP grew by 0.2 per cent on a monthly basis in September, Statistics Canada said.

An economy enters a technical recession when it has two consecutive quarters of negative growth — and the third quarter GDP results “should quash recession chatter for now,” wrote Douglas Porter, the chief economist at Bank of Montreal.

“Even so, we are not significantly changing our forward look on the economy, and will stick to an expected growth rate of 1.4 per cent for next year,” said Porter, noting that the federal budget assumed 1.2 per cent growth.

“For the Bank of Canada, there are many mixed messages here, but the overall read is better than expected, thus more firmly putting them on the sidelines for next month’s meeting.”

Andrew DiCapua, chief economist at the Canadian Chamber of Commerce, offered a more somber assessment of the latest GDP reading, calling the economy “sickly.”

“We’ll need strong domestic demand to carry more of the load — it simply wasn’t there in third quarter GDP,” he wrote. “Households and businesses are still holding back, and the economy hasn’t found the momentum it needs to shift into a higher gear.”