The Canadian economy topped expectations with a sharp rebound in the third quarter as a stronger trade balance helped fuel the recovery from a tariff-driven contraction.Statistics Canada said Friday that real gross domestic product rose 2.6 per cent on an annualized basis in the third quarter of 2025. That’s well above expectations from both the Bank of Canada and a poll of economists heading into the release for 0.5 per cent annualized growth.The figures mark a rebound from a contraction at an annualized rate of 1.8 per cent in real GDP for the second quarter as U.S. tariffs took hold on the Canadian economy. Those results were revised two tenths of a point lower from earlier StatCan reports.BMO chief economist Doug Porter said in a note to clients Friday that while the headline growth rate was a pleasant surprise, the details were more mixed, with a pullback in imports driving the gain.Exports edged up 0.2 per cent in the three months from July to September, coming off a steep drop of 7.0 per cent from April to June as U.S. tariffs took full effect. Imports meanwhile fell 2.2 per cent in the segment’s sharpest drop since the fourth quarter of 2022, pushing GDP higher.Dragging on growth last quarter was a decline in household spending — thanks largely to fewer purchases of passenger vehicles — and a slower accumulation in manufacturing inventories.Domestic demand, which encompasses all spending in an economy from consumers, governments and businesses, was slightly negative in the third quarter.“The data were going to be noisy this quarter coming off the trade shock in Q2, so what’s important here is to look at the flat performance for domestic demand, and it paints the subdued picture we expected,” TD Bank senior economist Andrew Hencic said in a note.Porter pointed out that revisions recorded Friday to the 2022, 2023 and 2024 GDP results also show overall growth in those years was ratcheted up by a combined 1.4 percentage points.StatCan cautioned that its third-quarter GDP figures may be subject to larger revisions than usual thanks to the recent U.S. government shutdown. Because the agency relies on U.S. customs information for its merchandise trade inputs, StatCan had to produce a special estimate for its September figures to substitute traditional data sources hampered by the shutdown.Growth in government capital spending also helped fuel growth in the third quarter, the agency said, particularly thanks to an 82 per cent jump in spending on weapon systems from the previous quarter.The resale housing market was also heating up somewhat in the third quarter of the year, offset by a drop-off in construction. (ICE TORONTO)

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