OTTAWA — The Canadian economy slightly exceeded expectations in the third quarter to grow at its fastest pace in more than two years and rebound from a second-quarter contraction.
The country’s real gross domestic product expanded at an annual rate of 3.5 per cent with help from a strong performance in energy exports, Statistics Canada said Wednesday.
Experts had long predicted a bounce back from a second-quarter slump, which was largely due to oil-production shutdowns linked to May’s Alberta wildfires and scheduled maintenance at oilsands facilities. In that quarter, real GDP recoiled at an annual rate of 1.3 per cent — revised from an initial reading of a 1.6 per cent pull back.
But the latest quarterly number came in above predictions and many analysts were encouraged by the particularly sturdy growth of 0.3 per cent in September, the final month of the third quarter.
“Certainly the hand-off looks much firmer than we thought it would,” Desjardins senior economist Jimmy Jean said in an interview.
“I think there’s good reason to remain somewhat optimistic.”
Canada saw growth of 0.2 per cent in August and 0.5 per cent in July.
Before Wednesday, Jean said Desjardins had projected 1.9 per cent growth for the fourth quarter. He now expects that number will very likely move north of two per cent.
Economists had been predicting the economy to grow 0.1 per cent in September and at an annualized rate of 3.4 per cent in the third quarter, according to Thomson Reuters. In October, the Bank of Canada predicted 3.2 per cent growth for the same period.
Overall, exports of goods and services rose 2.2 per cent in the third quarter compared to a contraction of 3.9 per cent in the second quarter.
Statistics Canada said exports of energy products expanded 6.1 per cent in the third quarter following a decline of 5.1 per cent during the previous period.
Jean pointed to further growth in household spending and the 3.7 per cent increase for investment in non-residential structures — its first increase after seven consecutive quarterly declines.
On top of this, Jean added that moving forward he expected Canada to feed off the strong U.S. economy.
BMO chief economist Doug Porter was also optimistic about the future, thanks to the sturdy performance in September and the second-quarter revision.
“For the first time in ages, this sets the stage for broad-based upward revisions to Canada’s overall GDP growth rate, for both 2016 and perhaps 2017,” Porter wrote in a research note to clients.
“The latter could also be potentially fuelled by firming oil prices.”
Real GDP growth in the third quarter posted its strongest performance since the second quarter of 2014, when it reached was 4.2 per cent.
TD economist Brian DePratto, however, was far more skeptical about Wednesday’s report.
“On the face of it, it’s a pretty positive report,” DePratto said in an interview.
“Unfortunately, when you kind of open the hood on it, there’s a little bit less to be happy about than what we might have expected.”
He noted, for example, that once energy is stripped away growth in September would have only been around 0.1 per cent.
DePratto added that the economy has yet to see a real rotation to other sources of growth, that the Bank of Canada has long been hoping for. Household spending remained a key economic driver and a continued slide in business investment was a disappointment because analysts had been expecting to a bit of a “bottoming out,” he said.
Statistics Canada found that business investment in machinery and equipment contracted 3.2 per cent in the third quarter, following a gain of one per cent in the second quarter.
The report said business investment in residential structures decreased 1.4 per cent in the third quarter after nine straight quarters of growth. The agency said the decline was due to a 5.7 per cent drop in ownership transfer costs, which reflect movement in the resale market.
The lower transfer costs followed British Columbia’s introduction of a new tax on home purchases by non-residents, the report noted.
The GDP reading came ahead of the Bank of Canada’s scheduled announcement next week on its trend-setting interest rate, which is widely expected to stay at 0.5 per cent.