The Devil Is in The Details for Canada's Q3 GDP, Says National Bank

11:56 AM EST, 12/01/2025 (MT Newswires) -- After a quarter severely impacted by trade tensions, the Canadian economy returned to growth in Q3 with an annualized increase of 2.6%, surprising economists by a wide margin, said National Bank of Canada.

Trade data was the main driver of this volatility, significantly boosting growth in Q3 after holding it back in Q2, noted the bank. This time around, the sharp drop in imports alone accounts for all the growth in the quarter, while exports essentially stagnated after last quarter's strong decline.

Statistics Canada pointed out that, given the United States government shutdown that took place in October, it didn't receive data on Canadian exports to the U.S. for the final month of the quarter and, as such, resorted to special estimates. As a result, National Bank will keep an eye on potentially larger-than-normal revisions to trade statistics in the coming months.

In the bank's view, it would be" very premature" to conclude, based on last Friday's report, that the worst is over for the Canadian economy. Final domestic demand essentially stagnated during the quarter, after admittedly surprisingly strong growth in Q2.

Construction and government spending limited the damage, but consumption, the heavyweight, declined.

Indeed, household consumption was down 0.4%, its worst quarterly performance since the pandemic. Such a development was predictable given sluggish retail sales in a more challenging labor market, added the bank. What was more surprising was the extent of the decline in investment in machinery and equipment after the carnage of the previous quarter.

Over two quarters, these investments are down 14.9% annualized and now stand at their lowest level since Q1 2021. Despite stronger-than-expected growth, National Bank's assessment of the economic situation hasn't changed dramatically. Consumers have taken a hit in a fragile labor market, and uncertainty is holding back investment.

Economic growth was certainly strong in September at 0.2% month over month, but the 0.3% decline in October, according to preliminary figures, could mean disappointing economic performance in Q4. Friday's report doesn't change the bank's view that the Bank of Canada will remain on the sidelines.

Despite a still fragile economy, inflationary pressures are too persistent for the BoC to do more, according to National Bank.

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