The Canadian economy saw a significant rebound in the third quarter. A 0.65% expansion in the quarter was more than enough to recover the downwardly revised 0.47% contraction in the previous second quarter.
Table1: Contributions to GDP Growth (ppts)
| Date | Household Consumption | Business Investment | Government Expenditures | Change in Inventory | Export | Import | Others |
|---|---|---|---|---|---|---|---|
| Q2 2025 | 0.552 | -0.015 | 0.313 | 0.936 | -2.282 | 0.036 | -0.006 |
| Q3 2025 | -0.059 | 0.008 | 0.020 | -0.154 | 0.055 | 0.724 | 0.051 |
The economic revival was, nonetheless, driven largely by a sharp decline in imports. As can be observed from the contribution graph below, the decline in imports alone accounts for more than 0.7 percentage points (ppt) of the growth; that is even larger than the total growth rate.
Weak domestic demand as consumption falls
A useful way to gauge domestic demand is to look at the so-called Private Domestic Final Purchase (PDFP). This concept, popularized by the Federal Reserve in recent years, serves as an indicator to the domestic demand resiliency in the US economy. Here, it is calculated using Statistics Canada data on household consumption and business gross fixed capital formation.
In Q3, we saw a slight contraction of 0.07%.
This contraction was primarily the result of household consumption falling 0.1%, while business investment booked zero growth.
The drop in import may be a combined result of business and consumer switching to domestic products (which is a positive sign) and a continued adjustment of external trade behaviors following the wide swing in the previous two quarters (which is noise).
However, given that overall consumption expenditure weakened significantly, it appears that the economy is hanging by a thread, making it difficult to celebrate this rebound.
Further considerations
Many analysts also cautioned that the international trade figures can receive substantial revision in coming months due to its reliance on US data, which was delayed due to the government shutdown.
According to StatCan, government investment also supported the economy, specifically regarding investment in non-residential structures (such as hospitals) and an 82% QoQ increase in defense weapon systems spending.
