OTTAWA - The Canadian economy experienced a significant rebound in the third quarter of 2025, with real gross domestic product (GDP) increasing by 2.6 percent on an annualized basis. This growth exceeded expectations from both the Bank of Canada and economists, who had predicted a modest 0.5 percent increase.

Statistics Canada reported the figures on Friday, highlighting that this growth comes after a contraction of 1.8 percent in the second quarter, which was largely attributed to the impact of U.S. tariffs. The previous quarter's results were revised down by two-tenths of a point from earlier estimates.

A stronger trade balance was a key factor in the recovery. Exports rose by 0.2 percent from July to September, recovering from a steep decline of 7.0 percent in the previous quarter. Meanwhile, imports fell by 2.2 percent, marking the largest drop since the fourth quarter of 2022, which contributed positively to GDP growth.

Government capital spending also played a role in the third quarter's growth, particularly due to an 82 percent increase in spending on weapon systems compared to the previous quarter. Additionally, the resale housing market showed signs of improvement, although this was somewhat offset by a decline in construction activity.

However, household spending decreased, primarily due to fewer purchases of passenger vehicles, and there was a slower accumulation of manufacturing inventories.

Statistics Canada cautioned that the third-quarter GDP figures might be subject to larger revisions than usual due to the recent U.S. government shutdown. The agency relies on U.S. customs data for its merchandise trade inputs, which necessitated a special estimate for September's figures.

In September, real GDP rose by 0.2 percent, slightly higher than initial estimates, compensating for a 0.1 percent decline in August. The manufacturing sector led the growth in September, while the transportation and warehousing sectors rebounded as travel activity increased following the Air Canada flight attendants' strike.

Looking ahead, early estimates for October suggest a challenging start to the fourth quarter, with expectations of a 0.3 percent decline in real GDP. This anticipated drop is attributed to losses in oil and gas extraction, educational services, and manufacturing. These preliminary figures will be revised with the formal release of October GDP data in December.

The third-quarter GDP results come just ahead of the Bank of Canada’s final interest rate decision of the year, scheduled for December 10.