MNI: Canada Q3 GDP Gains 2.6% Vs Expected 0.5% On Import Drop

Canada's economy rebounded much faster than expected in the third quarter led by a drop in imports that combined with the first decline in consumer spending in four years and contraction in October's flash GDP suggests weakness ahead.

Gross domestic product grew at a 2.6% annualized pace to beat the central bank's 0.5% estimate, and Statistics Canada's preliminary monthly reading showed a 0.3% decline for October led by energy and manufacturing. 

Imports fell 8.6% on a reversal of demand for precious metals and a let-down from the second quarter when shipments were boosted by the arrival of a large oil and gas platform module, the agency said. Exports grew 0.7% led by crude oil and bitumen following the 25% plunge in the second quarter as the U.S. imposed steep tariffs. Slower accumulation of manufacturing inventories dampened overall growth, and business investment in non-residential gear was down 4.5%, the third straight decline, StatsCan said.

Household spending fell at a 0.4% annualized pace, the first decline in four years and the biggest fall since the pandemic in 2020. Spending on cars led a decrease that was tempered by gains for rent and investment services.

Elevated real estate costs are one thing keeping core inflation around 3% and helped move the Bank of Canada to the sidelines at its Oct. 29 decision after a quarter-point cut to 2.25%. Governor Tiff Macklem also said officials have provided enough relief to absorb the shock of the U.S. trade war and expects modest growth of about 1% next year. He's also said fiscal policy is better at helping hard-hit industries like steel and automakers.

The third-quarter figure is subject to a larger-than-normal revision three months from now because it's based on a special estimate of merchandise trade figures after the U.S. government shutdown deprived StatsCan of some customs data used to calculate exports. Second quarter GDP was revised to a 1.8% decline from the 1.6% initial estimate.

Monthly GDP figures published alongside the quarterly report showed a 0.2% increase in September after August's 0.1% decline. September's increase was led by the end of summer retooling shutdowns at Ontario auto assembly plants, though overall manufacturing remains down from a year ago.