Canada's Q3 GDP Posts Upside Surprise, But Key Private Sector Demand Components Weaken Sharply, Says Rosenberg Research

11:19 AM EST, 12/01/2025 (MT Newswires) -- The Canadian economy Friday surprised to the upside in a "major way" in Q3, with real gross domestic product expanding at a 2.6% annual rate, which blew a hole through the 0.5% consensus estimate -- and more than wiped out the 1.8% annualized Q2 contraction, said Rosenberg Research.

Before uncorking the champagne because Canada escaped a technical recession, the headline number received a gift from a trade-related 8.6% annualized slide in imports, which acted as a positive arithmetic contribution to real GDP, noted Rosenberg Research. Strip that out, and the economy actually did shrink modestly at a 0.4% annual rate.

Acting as a big drag was the Canadian consumer, where volume spending fell by 0.8% (annualized) in the first decline since Q2 2020, pointed out Rosenberg.

Business capex (machinery & equipment), in stark contrast to the Artificial Intelligence boom in the United States, contracted at a huge 10.5% annualized pace, and that came on the heels of a 19.1% plunge in Q2. Non-residential construction activity dropped at a 1.1% rate, negative in two of the past three months, wiping out a 6.7% bounce in the housing sector.

The government sector in aggregate was fairly flat, as was the case with export volumes -- after an epic 25.1% Q2 setback. There was also a negative contribution from the first inventory withdrawal of the year.

All in, and this is what should be top of mind for the Bank of Canada, real final domestic demand dipped at a 0.1% annual rate and is down fractionally in two of the past three quarters, stated Rosenberg.

Year-to-date, that's a "tepid" 0.9% annual growth rate compared with 2.9% this time last year, so it can definitely be asserted that the Canadian economy remains in the throes of a decisive aggregate demand growth turndown, it added.

When you tally the consumer, housing, business capex, and non-residential construction, what you see in Q3, again, was a 0.3% annualized decrease, printing with a minus sign for the second time in the past three quarters. The positive reading in Q2 is the only thing that has separated the domestic private-sector economy from being in a classic recession, according to Rosenberg.

The Bank of Canada, which may well hold its fire at the December policy meeting, isn't exactly done just yet in this prolonged easing cycle, believes Rosenberg.

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