The Canadian economy managed to avoid a recession in the third quarter, according to the latest report from Statistics Canada, which says Gross Domestic Product, or GDP climbed 0.6 per cent from July through September.
This follows the second quarter, which saw the economy’s productivity decline by 0.5 per cent on average from April through June.
GDP rebounded 2.6 per cent year-over-year in the third quarter after falling 1.8 per cent in the second quarter.
GDP is generally measured by adding up the total value of all goods and services produced within a country’s borders in a given period.
Most economists and financial analysts define a technical recession as two straight quarters, or a six-month stretch, where the economy shrinks instead of expands.
Despite the solid headline result, the underlying details of the GDP report were “mixed,” Nathan Janzen, assistant chief economist at Royal Bank of Canada said in a statement, adding that sectors exposed to tariffs and the trade war showed “further signs of stabilization.”
Canada’s economy took a hit from U.S. President Donald Trump’s tariff policies earlier this year, especially in the manufacturing sector, which led to a lot of the GDP declines in the second quarter.
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But the economy bounced back, as Statistics Canada says exports edged up as imports fell sharply, strengthening the national trade balance in the third quarter.
The agency also says government capital investments, particularly on new weapon systems, pushed growth higher last quarter but slowing household spending and construction activity offset some of the gains.
“Canada’s headline growth only looks good on paper — external conditions will continue to put pressure on the economy,” said Andrew DiCapua, principal economist at the Canadian Chamber of Commerce in a statement.
“We’ll need strong domestic demand to carry more of the load — it simply wasn’t there in third quarter GDP. Households and businesses are still holding back, and the economy hasn’t found the momentum it needs to shift into a higher gear.”
In October, the Bank of Canada delivered its latest interest rate cut to help boost the economy, which Governor Tiff Macklem said had been “weakened” by tariffs and the trade war. It was also the third cut to borrowing rates so far in 2025.
This latest GDP report was higher than the 0.5 per cent growth the central bank had predicted. Macklem said even with some modest growth, the economy is performing below its potential, and added it’s “not going to feel very good” over the next few months.
Thirty-five per cent of business and financial leaders surveyed in September said they expect the Canadian economy to fall into a recession within the next six months, according to the Bank of Canada’s Market Participants Survey for the third quarter.
– With files from the Canadian Press
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