The Canadian economy expanded by 2.6% annually in the third quarter, as reported by Statistics Canada on Friday, averting a technical recession primarily due to a significant increase in defense expenditures. Government outlays on military equipment surged by 82% in the third quarter, driving the better-than-expected growth, accompanied by a rise in crude oil exports. In June, Ottawa committed to allocating five percent of GDP to defense by 2035, in alignment with other NATO nations.
Furthermore, there was an uptick in government spending on non-residential infrastructure, including hospitals. However, business investments remained largely stable in the third quarter, according to Statistics Canada, while household spending dipped due to reduced car purchases but increased expenditures on rent and financial services.
Statistics Canada revised the second-quarter GDP figures from a 1.6% contraction to a 1.8% decline, highlighting that the third-quarter GDP data may undergo a significant revision in February due to missing information resulting from the U.S. government shutdown. September saw a 0.2% monthly growth in GDP, as per Statistics Canada.
A technical recession occurs when an economy experiences two consecutive quarters of negative growth, with the third-quarter GDP outcomes helping dispel recession concerns, according to Douglas Porter, Bank of Montreal’s chief economist. Porter maintained a forecast of 1.4% growth for the upcoming year, slightly above the federal budget’s assumption of 1.2% growth.
Regarding the Bank of Canada, Porter indicated that the latest data, while presenting mixed signals, surpassed expectations, leading to a more neutral stance for the upcoming meeting. Contrarily, Andrew DiCapua, chief economist at the Canadian Chamber of Commerce, expressed a more pessimistic view of the current GDP report, characterizing the economy as “unhealthy.” DiCapua emphasized the necessity for robust domestic demand to drive economic progress, pointing out the subdued performance of households and businesses in the third quarter.