Canada’s Economy Snaps Back, Calming Recession Jitters

Strong Economic Recovery in Q3

Canada’s economy expanded by 2.6% on an annualized basis in the third quarter, rebounding sharply from the 1.8% contraction recorded in the previous quarter. This growth exceeded most analysts’ expectations and eased concerns about an imminent recession.

Economists attributed the rebound to stronger household spending, steady labor market conditions, and increased exports following a weak spring performance.

Key Drivers of Growth

Consumer Spending: Higher outlays on goods and services played a central role in the recovery, reflecting resilience despite elevated borrowing costs.
Exports: Energy and manufacturing shipments improved as global demand stabilized.
Government and Business Investment: Infrastructure projects and renewed corporate capital spending contributed modestly to growth.

Policy and Market Reaction

The stronger-than-expected data could influence future decisions by the Bank of Canada, which has maintained a cautious stance amid inflation concerns. Markets viewed the results as a sign of economic resilience, though analysts warned that slowing global momentum and high interest rates may temper growth prospects in the coming quarters.

“This bounce shows that Canada’s economy still has underlying strength, even as households adjust to higher rates,” said one economic strategist.

Economic Outlook

Analysts expect moderate expansion in 2026 as inflation trends nearer to target levels and household finances gradually stabilize. However, risks remain from soft global trade, lingering price pressures, and tightening credit conditions.

Author’s summary: Canada’s economy rebounded strongly in Q3 2025, exceeding forecasts and easing recession concerns, driven by consumer spending and stable exports.

Morningstar Canada — 2025-11-28