A strengthening trade balance and increased capital investment led by government capital spending helped Canada's GDP rebound at an annualized rate of 2.6 percent in the third quarter. That being said, household and government consumption declined.

The growth estimate for the second quarter was revised down to a 1.8 percent contraction from the 1.6 percent decline initially reported.

Real GDP was up 0.6 percent on a quarterly basis after declining 0.5 percent in the second quarter. On a per capita basis, GDP rebounded 0.5 percent, erasing the previous quarter's decline of 0.5 percent.

The 2.6 percent GDP growth proved quite stronger than the 0.5 percent annualized growth projected by the Bank of Canada, further removing chances of a rate cut, at least in the short term. The underlying composition of growth was also different from the central bank's expectation of higher imports and government and household consumption, which was more optimistic than reality proved to be, since all three categories contracted. By contrast, where the BoC expected business investment to contract, Statistics Canada reported unchanged business capital investment. The BoC had also expected exports to decline.

The third quarter GDP rebound masked weakening domestic consumption momentum, as household final consumption declined at an annualized pace of 0.4 percent (edging down 0.1 percent on the quarter), trimming GDP by 0.2 percentage points. Lower purchases of vehicles drove household spending down.

General government expenditure fell 1.7 percent (minus 0.4 percent quarterly, the first decline since the fourth quarter of 2023), trimming GDP by 0.4 points.

Slower business inventory accumulation also dampened GDP performance, with investment in inventory trimming 0.6 percentage points.

Also signaling weakening domestic demand, imports of goods of services fell 2.2 percent, the largest quarterly drop since the fourth quarter of 2022, for an 8.6 percent annualized plunge due to lower imports of unwrought gold, silver and platinum metals. By contrast, exports increased at an annualized rate of 0.7 percent (0.2 percent quarterly), while imports plunged 8.6 percent (minus 2.2 percent quarterly), leading to a strengthening trade balance.

The shifting policies to bolster national security were felt through higher government investment in weapon systems, which surged 82.0 percent, driving government capital investment up 2.9 percent from the previous quarter, for an annualized pace of 12.2 percent.

Residential investment increased 1.6 percent on the quarter, for an annualized rate of 6.7 percent after 4.4 percent the previous quarter. Higher resale activity explained the rise in residential investment, while new construction was down.

GDP expected up 0.5 percent on quarter in Q3.

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.