OTTAWA, Nov 28 (Reuters): Canada's economy grew at a much faster pace than expected in the third quarter as crude oil exports and government spending boosted economic activity, data showed on Friday, even as business investments and household consumption disappointed due to the lingering uncertainty over US tariffs.
Third-quarter annualized gross domestic product grew 2.6 per cent, Statistics Canada said, escaping what could have been a technical recession after a contraction in the previous quarter of a downwardly revised 1.8 per cent. The data strengthened economists' view that the Bank of Canada will not cut interest rates on December 10.
The quarterly GDP reading is calculated based on income and expenditure, unlike the monthly GDP which is derived from industrial output.
The statistics agency said the third-quarter number could be subjected to a larger-than-normal revision in February because foreign merchandise trade data was not available due to the recent US government shutdown.
Analysts polled by Reuters had forecast annualized growth of 0.5 per cent in the third quarter and monthly GDP growth of 0.2 per cent in September.
On a month-over-month basis, the economy matched analysts' predictions following a deceleration of an upwardly revised 0.1 per cent in the prior month, StatsCan said, primarily driven by a 1.6 per cent expansion in manufacturing output.
However, an advance estimate showed GDP might decline by 0.3 per cent in October, signaling a negative start to the fourth quarter.
US tariffs on critical sectors have hit Canadian exports hard. They have resulted in job losses, dampened hiring and subdued business and consumer sentiment, leading to forecasts of a near-recessionary environment.
But a 6.7 per cent increase in crude oil and bitumen exports, along with a 2.9 per cent increase in government capital investments, helped cushion some of the impact and higher crude oil exports also helped boost corporate income in the third quarter, StatsCan's data showed. An increase in spending on weapon systems and non-residential structures such as hospitals led the jump in government investments.
A rise in residential resale activity and renovations also helped.
The report "should quash recession chatter for now," Doug Porter, chief economist at BMO Capital Markets, wrote in a note.
The Bank of Canada said last month that it will keep its key interest rate on hold at 2.25 per cent and only take action when there is a significant change in the economic outlook.
The underlying impact of tariffs, however, continues to be reflected in business and consumer sentiment, the GDP data showed.
Business capital investment was unchanged in the third quarter and household final consumption expenditure dropped 0.1 per cent.
