Canada’s economy showed signs of growth in the third quarter, but a mix of challenges, including trade uncertainty and weaker-than-expected performance, casts a shadow over the future. Statistics Canada reported a one percent annualized increase in real GDP between July and September, falling short of the Bank of Canada’s 1.5 percent projection.
Consumer spending played a pivotal role in sustaining economic growth, particularly with increased purchases of vehicles like trucks and SUVs. Household savings also rose as disposable income grew at a faster rate than spending. However, slower business investment in machinery and equipment and reduced growth in inventories dragged on GDP performance.
Economists are optimistic about the upcoming holiday season, fueled by the federal government’s GST/HST “holiday,” proposed stimulus payments, and anticipated interest rate cuts from the Bank of Canada. These measures are expected to boost consumer confidence and spending. BMO Chief Economist Doug Porter noted this “sunnier domestic outlook” but highlighted the “dark cloud” of potential 25 percent tariffs threatened by U.S. President-elect Donald Trump.
Trump’s tariff threats, aimed at pressuring Canada and Mexico on border security issues, have heightened economic uncertainty. While still speculative, such tariffs could severely impact Canada’s trade-reliant economy and raise costs for U.S. consumers. Assuming these tariffs are avoided, Porter forecasts a two percent GDP growth for Canada in 2025.
Housing investment offered a glimmer of hope, with quarterly gains driven by a rebound in resale market activity. However, new home construction and renovations continued to decline, reflecting lingering challenges in the sector.
The Bank of Canada has been cutting its policy rate to stimulate the economy, reducing it by 1.25 percentage points since June. Analysts are debating whether the central bank will announce another significant rate cut at its final meeting of the year on December 11. Weaker-than-expected GDP growth strengthens the case for a half-point reduction, though upcoming jobs data could influence the decision.
Currency markets have raised the probability of a larger rate cut following the latest economic data. Meanwhile, revisions to GDP figures from the past two years suggest that overall economic performance has been stronger than previously thought, complicating the central bank’s calculus.
The upcoming holiday shopping season, buoyed by tax relief and stimulus measures, is expected to provide a temporary lift. However, broader concerns about trade relations and long-term economic stability remain front and center as Canada navigates an uncertain economic landscape.
