Canada’s economy has delivered one of the strangest narratives of the year.
The country is growing on paper, yet slowing in real life. Output is rising again, but the parts of the economy that matter for long-term prosperity continue to lose strength.
Many Canadians sense a downturn even as the headline numbers point upward.
This split is what gives 2025 its unusual texture. The data says recovery, while the ground level tells a less optimistic story.
A rebound that doesn’t look like a rebound
Statistics Canada reported a 2.6% annualised GDP increase in the third quarter. It is the strongest reading since last year and a sharp reversal from the 1.8% decline in the second quarter.
Source: Bloomberg
At first glance, the rebound looks like the start of a new cycle, but things aren’t that simple.
Housing investment rose at a 6.7% annualised pace as lower borrowing costs encouraged a return to the resale market.
This improvement was enough to lift residential structures after months of slower activity.
Government investment grew even faster. Capital spending by Ottawa increased by more than 12%, led by purchases of new military vessels.
These orders helped push total government investment to its largest quarterly jump in several years.
The fact that imports fell by 8.6% is a side effect of lower shipments of precious metals and weaker demand more broadly.
In the national accounts, a fall in imports boosts GDP. It is a mathematical effect rather than a sign of strength, but it played a large role in the quarter’s performance.
Exports rose slightly but remain far below levels seen before the tariff shock in the spring.
Energy shipments helped steady the numbers, though the country still exports significantly fewer manufactured goods to the United States than a year ago.
Taken together, these forces produced a strong headline figure backed by a narrow set of contributors. Housing, military spending, and the fall in imports carried the quarter.
The rest of the economy lagged behind.
The slowdown inside the growth
Final domestic demand fell slightly in the third quarter.
Household consumption declined by 0.4%, while the savings rate crept up to 5.8% in September, up from 4.7%.
Families appear to be taking fewer financial risks and postponing purchases.
Inflation has come down to around the 2% target, but wage growth has slowed as well.
Real incomes are not rising quickly, and many households are adjusting to higher debt service costs from the past two years.
Source: Reuters
Business investment dropped again, and spending on non-residential structures, machinery, and equipment also fell at an annualised rate of 4.5%.
Firms also cut their inventories. Surveys show a steady slide in business confidence through the summer.
Many companies are delaying expansion plans and keeping capital budgets tight.
Employment data follows the same pattern.
The unemployment rate has moved toward 7% as hiring begins to freeze, and wage growth has slowed to around 3% year over year.
None of this indicates a deep labour market crisis, but it confirms a cooling trend. After two years of strong hiring, the job market is now moving at a slower pace.
Early indicators for the fourth quarter suggest the weakness may continue. Industrial output in October fell by 0.3%.
So the underlying trend points to a domestic economy operating at a low gear.
The trade shock reshaped Canada’s path
The most significant event for Canada this year was the trade war with the United States.
Tariffs on Canadian steel and softwood lumber pushed export volumes sharply lower in the second quarter.
The second quarter’s 25% decline in goods exports was the largest in years and set off a chain of effects that continues today.
Investment slowed as firms reassessed their supply chains and market strategies.
Producers turned to domestic buyers and looked to diversify sales abroad.
Ottawa introduced new measures to support the steel and lumber sectors.
It imposed its own limits on imported steel and offered support packages for affected industries.
These actions helped stabilize production, but have not replaced the lost US demand.
The federal government has spoken more openly about changing trade relationships.
Ministers describe 2025 as a turning point in Canada’s dependence on the US market.
Source: Bloomberg
Plans for deeper engagement with Asia and Europe are moving beyond strategy papers and into early-stage agreements. The aim is to reduce vulnerability to future trade conflicts by building a more diverse export base.
The Bank of Canada’s autumn outlook reflects this transition. The central bank expects trend growth near 1% for the next few years. This is lower than the growth potential Canada enjoyed during periods of deepening North American integration.
According to the bank, the economy should expand by around 1.4% in 2026 and 2027.
The policy rate remains at 2.25% as inflation hovers near its target. Monetary policy is stable but not powerful enough to generate strong private sector momentum.
Source: Bank of Canada
Old strengths carry the load as new policies take shape
Resources industries are carrying Canada’s strength, with higher global energy prices supporting the terms of trade and lifting export revenue.
Western provinces moved forward on new energy corridors and pipeline expansions.
Many of these projects feature provisions for Indigenous ownership and commitments to carbon capture technology. The combination of resource development and environmental investment has become one of Canada’s primary economic themes.
Housing continues to shape day-to-day economic activity. High immigration levels create persistent demand for homes.
Although prices have flattened in several cities, the pressure on renters remains strong. New construction is not keeping pace with population growth.
The third-quarter rebound in resale activity boosted GDP and eased some concerns about prolonged weakness in the housing sector. The underlying supply challenges remain unresolved.
Ottawa has increased its role in the economy. The federal government is investing in defence, infrastructure, and clean energy.
These programs provide support while the private sector takes a more cautious stance.
The strategy indicates a big change in Canada’s approach to economic development.
Instead of relying on open markets and private investment, government spending is now picking up the slack in key areas.
Whether it leads to a sustained improvement in productivity is not yet clear.
Why the story feels so split
The contradiction of 2025 lies in the distance between national accounts and daily experience. GDP shows growth.
The gains come from housing activity, military procurement and import patterns rather than a broad expansion of demand.
These sectors can lift the numbers without making households or businesses feel any stronger.
At the same time the elements that shape most people’s perception of the economy have not improved. Consumers are spending less.
Firms are cutting investment. Exports are recovering only slowly from the tariff shock. Productivity has barely moved.
On a per-person basis, output has been close to flat. Many workers sense fewer opportunities even though the country avoided a formal recession.
Canada enters the end of the year with growth that looks firm from afar and fragile up close.
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