Canada’s economy delivered an unexpected comeback in the third quarter of 2025, rebounding sharply with 2.6% annualized growth — far stronger than predictions from both the Bank of Canada and private-sector economists. The turnaround follows a difficult second quarter marked by a 1.8% contraction driven by U.S. tariffs.
Statistics Canada reports that the rebound was powered largely by an improved trade balance. Exports inched up 0.2% between July and September after a steep 7% drop in the previous quarter. At the same time, imports plunged 2.2% — the sharpest drop since late 2022 — helping push GDP higher.
Economists, however, warn that the underlying picture is less encouraging. Domestic demand — which captures spending by households, businesses, and governments — was slightly negative, and household consumption saw its biggest non-pandemic quarterly decline in nearly 20 years, due mostly to reduced vehicle purchases. Business investment also weakened, and manufacturing inventories grew at a slower pace.
BMO chief economist Doug Porter called the headline growth number a pleasant surprise, but noted that the details reveal softer momentum. TD Bank economist Andrew Hencic added that the figures remain “noisy” due to the Q2 trade shock and pointed to the flat domestic demand as the more important takeaway.
Revisions to GDP data for 2022, 2023, and 2024 were also released, collectively raising previously reported growth by 1.4 percentage points — suggesting the economy had been more resilient than earlier believed. Still, Statistics Canada cautioned that this quarter’s results may face larger-than-usual revisions due to the recent U.S. government shutdown that disrupted the flow of customs data.
Government capital spending also contributed to the quarter’s performance, including an 82% jump in expenditures on weapon systems. A modest recovery in resale housing helped offset declines in construction.
Monthly GDP showed a 0.2% rise in September, led by manufacturing and a rebound in transportation and warehousing after the Air Canada flight attendants strike. But early estimates for October point to a 0.3% decline, suggesting a weak start to the fourth quarter.
The results arrive just ahead of the Bank of Canada’s final interest rate decision of the year on December 10. The central bank recently cut its benchmark rate to 2.25% but signalled that further reductions are unlikely unless economic trends shift significantly.
Economists like Bradley Saunders at Capital Economics say the import-driven Q3 boost obscures the economy’s struggle for momentum. Without a strong rebound in November, growth could fall short of the Bank of Canada’s projected path.
Even so, Porter says the surprising Q3 performance should help quiet recession fears — at least for now — even as policymakers navigate a landscape of mixed signals.