Canada's economy contracted at an annualized rate of 1.1 percent (minus 1.054 percent unrounded) in the third quarter, below Econoday's consensus expectation of a 0.1 percent increase, following an upwardly revised 1.4 percent expansion in the second quarter.

In its October Monetary Policy Report, the Bank of Canada projected 0.8 percent annualized growth in both the third and fourth quarters. Today's weaker-than-expected growth report reduces the odds of further rate hikes for now, although the upward revision to the second quarter's estimate somewhat tempers the weakness. Econoday's Relative Performance Index also points to limited tightening risk.

On a quarterly basis, GDP growth fell 0.3 percent, erasing the previous quarter's 0.3 percent advance.

Lower exports and slower inventory accumulation were behind much of the weakness, which was partially offset by higher government spending and housing investment.

Exports of goods and services fell 1.3 percent over the quarter (down 5.1 percent annualized), cutting GDP by 1.725 percentage points. Inventories accumulated at the slowest pace in two years, trimming the annualized GDP by 0.952 percentage points.

Final consumption expenditure was up 0.5 percent over the quarter and final domestic demand up 0.3 percent.

Meanwhile, government spending rose 1.8 percent (7.3 percent annualized), adding 1.490 percentage points to the annualized GDP. Household consumption was flat for a second consecutive month (just 0.1 percent annualized). Spending on durable goods rose 1.0 percent and services were up 0.3 percent, while spending on non-durables and semi-durable goods declined.

Despite higher interest rates, housing recovered 2.0 percent (8.3 percent annualized), boosting the annualized GDP growth by 0.618 percentage points. Higher construction activity offset weaker resales that weighed on ownership transfer costs.

A tiny 0.1 percent annualized expansion is the consensus for Canadian third-quarter GDP versus 0.2 percent contraction in the second quarter.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.

GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.