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Economy Sees Modest Growth in Third Quarter, Propelled by Households and Government

Canadian Economics

By: Viktor Cicman

  • Real gross domestic product (GDP) increased slightly by 0.1 per cent in September, after it being essentially unchanged in August. On an annualized basis, real GDP rose by 1.0 per cent for the third quarter as a whole.
  • Higher household spending led third quarter growth, rising by 0.9 per cent (quarter over quarter). It was led by increased spending on new trucks, vans and sport utility vehicles, along with higher spending on financial services. The good news is that on a per capita basis, spending increased last quarter, after falling in six of the previous eight quarters.
  • Growth in spending was supported rising wages and lower interest payments, which helped disposable income increase by 2.3 per cent. Falling interest rates led to lower interest payments, particularly on mortgages and consumer credit, which declined for the first time since the third quarter of 2021.
  • Government spending was also a major contributor to growth, rising by 1.1 per cent in the third quarter, its third quarterly increase in a row. In fact, spending across all levels of government increased in the third quarter of 2024.
  • Residential investment rose 0.8 per cent, its first expansion in a year. However, the growth was entirely due to resale activity as ownership transfer costs rose 4.9 per cent. Spending on new construction was essentially flat.
  • Non-residential business investment fell in the third quarter. The decline was driven by a 7.8 per cent contraction in investment in machinery and equipment thanks to lower spending on aircraft and other transportation and equipment.
  • Also contributing to slower growth last quarter was non-farm inventory accumulation, particularly among motor vehicle retailers and the manufacturing sector.
  • Both exports (-0.3 per cent) and imports (-0.1 per cent) edged down in the third quarter. Lower exports of unwrought gold allowed exports to decline more steeply than imports. Trade flows in passenger cars and light trucks slowed as both exports and imports declined.
  • In September, services-producing industries rose 0.2 per cent, in large part driven by increases in the retail and wholesale trade sectors. However, goods-producing sectors contracted due to slower activity in the mining, oil and gas, and manufacturing sectors.

Key insights

Today’s release of GDP estimates shows that growth in Canada’s economy was sluggish in the third quarter compared to the first half of the year. However, government spending on social programs and infrastructure helped stabilize the economy, along with robust population growth. And while employment growth decelerated, the unemployment rate has remained low by historical standards, and strong wage gains have also contributed to economic growth. Overall, the Canadian economy in the third quarter reflected a period of adjustment, with moderate growth, cooling inflation, and cautious business activity.

Growth will pick up soon. Canada’s central bank seems to have completed a soft landing with the economy avoiding a major recession while inflation was tamed, with economic growth expected to pick up in the coming quarters. With interest rates continuing to moderate we expect consumer spending and business activity to slightly pick up in the fourth quarter, with households benefitting from the federal government’s GST tax holiday. However, uncertainty in the upcoming U.S. administration is creating an intriguing 2025, potentially affecting many aspects of the economy and changing the BoC interest rate outlook.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit The Conference Board of Canada’s Canadian Outlook.

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