Economy records slowest increase since Q4 2023 in Q3

GDP reading: GDP expanded 1.0% in seasonally adjusted annualized terms (SAAR) terms in Q3, down from 2.2% in Q2 and marking the slowest expansion since Q4 2023. In the third quarter, stronger public and private spending were partially offset by slower non-farm inventory accumulation, weaker business investment and lower exports. On an annual basis, economic growth picked up to 1.5% in Q3 from the previous period's 1.1% growth.

Drivers: Looking at expenditure components, private consumption growth picked up to 3.5% SAAR in the third quarter, which marked the best reading since Q1 2023 (Q2: +0.9% SAAR). Public spending improved to a 4.5% increase in Q3 (Q2: +3.8% SAAR). Fixed investment contracted 1.9% in Q3, marking the worst result since Q4 2023 (Q2: +4.2% SAAR). Exports of goods and services slid at a slower pace of 1.1% in Q3 (Q2: -5.4% SAAR). In addition, imports of goods and services contracted at a milder pace of 0.4% in Q3 (Q2: -0.8% SAAR). As a result, the external sector subtracted from economic activity in Q3.

Modest growth ahead: Preliminary data shows a 0.1% monthly rise in October GDP, driven by gains in real estate, transportation, and retail that were partly offset by declines in construction and mining. This is in line with our Consensus for ongoing—albeit mild—economic growth over Q4 as a whole.

Panelist insight: On the reading and outlook, TD Economics’ James Orlando said: “Even though the headline print doesn't look encouraging, the underlying fundamentals remain strong. The lifeblood of the economy is the Canadian consumer, and they have been carrying the weight over 2024. As interest rates continue to fall alongside a wave of government stimulus over the coming months, we are looking for consumer spending to keep lifting GDP through at least the first half of 2025.” Goldman Sachs’ analysts said: “The composition of today’s GDP print was solid and upward GDP revisions suggest activity in 2021-2023 was somewhat stronger than previously reported, but weak headline GDP growth in both the Q3 and October flash prints imply that the Canadian economy is still growing below potential.”

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