Canada’s economy delivered a surprisingly strong performance in the third quarter of 2025, expanding at an annualized rate of 2.6% and sharply outperforming earlier forecasts. This marks a significant turnaround from the previous quarter’s contraction and temporarily quiets speculation about an impending recession. The improvement was driven largely by a dramatic narrowing of the trade deficit, as imports recorded their steepest decline in several years while exports posted only modest gains.

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Initial expectations had pegged third-quarter growth at around 0.5% annualized, consistent with the central bank’s earlier forecast. However, the latest data reveal a more complex and uneven economic picture. The headline number impressed, but economists characterized the report as volatile and difficult to interpret due to unusually large swings in trade components and substantial historical revisions.

One notable development was the revision of growth figures for 2022 through 2024, which were collectively upgraded by more than a full percentage point. These adjustments suggest that Canada’s economy had been more resilient over the past few years than previously thought, even if recent momentum remains inconsistent.

Despite the strong third-quarter result, the underlying details raise concerns. A steep 8.6% drop in imports was the primary factor pushing GDP upward, rather than robust domestic demand or strong export performance. Export growth barely moved into positive territory after a major decline in the prior quarter, highlighting ongoing external pressures.

Monthly indicators show a similarly uneven trajectory. Economic output rose 0.2% in September, driven mainly by goods-producing industries—particularly manufacturing, which posted a solid increase. Yet the early estimate for October points to a 0.3% pullback, suggesting that momentum may already be stalling.

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Looking ahead, analysts warn that trade disruptions, tariffs, and general economic uncertainty are likely to restrain growth over the next several quarters. While previous rate cuts may support consumer activity and housing to some degree, borrowing costs remain only slightly below neutral, limiting the potential for rapid expansion.

Forecasts indicate that monetary policy is likely to remain stable, with no further rate cuts expected and no need for tightening until much later in the decade. Despite the encouraging headline result, the broader economic landscape continues to reflect caution, fragility, and mixed signals about Canada’s near-term prospects.