The Canadian economy expanded faster than analyst forecasts, but it isn’t what it seems. Statistics Canada (StatCan) data shows Gross Domestic Product (GDP) saw unusually large growth in Q3. It sounds like good news, but diving into the data revealed the surge was entirely due to superficial accounting mechanics. Compounding the problem further—the agency warns larger than usual revisions will impact the area that fueled virtually all Q3 growth.
Canadian GDP Surges Higher On Weaker Households and Businesses
Canadian GDP bounced higher—at least on paper. The country’s GDP climbed 0.6% in Q3 2025, erasing the 0.5% decline in Q2’s downward revision. That works out to 2.6% annualized growth, nearly 5x the consensus market estimate. At the headline level, this is incredible growth for a country that’s positioning itself as hard hit. The details were less impressive.
StatCan attributes the rise to a stronger trade balance and government capital spending. Meanwhile domestic demand was flat, with stagnant business investment and household consumption pulling back. In plain english, this doesn’t show a broad-based recovery—but accounting mechanics and public-sector spending doing the heavy lifting. The latter also isn’t going where most Canadians would expect.
Canadian Q3 Growth Was Entirely Superficial Accounting Mechanics
Source: StatCan.
The surge in growth was almost entirely due to a decline in global imports. Imports contributed 0.7 points to GDP’s 0.6 points of growth—that’s correct, they added more than total GDP growth, the rest of the economy is just holding it back. Once again, that sounds great but import’s contribution to GDP is based on net trade.
Net trade is the balance of exports minus imports, with fewer imports than exports being ideal. Countries prefer exports to rise faster than imports, so GDP contribution prefers to see exports outpace imports. However, we just saw a phenomenon known as import compression: Imports fell abruptly due to households pulling back on spending, resulting in a sharp drop against mild exports. If that sounds less than ideal—congrats, you’re one smart cookie.
This skew is further amplified by two issues—seasonal adjustments and the US government shutdown. Since seasonal adjustments account for predictable and recurring patterns, they can over or understate volatility during periods of structural shocks like recession, trade war, or a new season of Dexter (kidding). This isn’t a problem that StatCan introduces or anything like that, but an odd phenomenon that only became clear by researchers after 2008.
Driver of Growth Subject To Large Revisions, Warns StatCan
And just to make life extra spicy—StatCan is stuck estimating and modeling both import and export data. Impacting the import side, the CBSA’s new customs and revenue management (CARM) system has produced delays in their ability to finalize data. We reached out to StatCan, who confirmed the timelines are improving but still result in larger than usual revision pre-CARM.
“Impacts tend to be largest in the most recently published month, particularly within customs basis data,” explained StatCan communications officer Cristobal D’Alessio.
The emphasis on customs basis data is the takeaway, as it’s foundational to import data. StatCan further explained the revisions are applied to the prior data month, with each monthly release. September 2025—one third of Q3—won’t be finalized until December 11, 2025.
A spokesperson from StatCan said they plan to release further details on CARM on that day. It’s unclear how they knew CARM technical documents were on my Christmas wishlist, but I digress.
On the export side is the US government shutdown that threw a totally different problem into the mix. StatCan had to estimate data for a destination that traditionally represents 75% of Canada’s exports. Then seasonally adjust it… during a trade war, and probably while having to go uphill in the snow both ways.
StatCan explicitly warned the shutdown will require another larger than usual revision.
No concrete data on imports or exports—what a time to be alive, eh? I feel like it’s also important to emphasize StatCan was tasked with making a virtually impossible estimate here. This isn’t intentional, but roadblocks to data access from other agencies.
Canada Goes Arms Up? Government Spending On Weapons Soars
The only other significant driver of growth was gross fixed capital formation (GFCF), the assets invested by business and government. It wasn’t businesses fueling the growth, which came in flat. The growth was entirely fueled by the government expanding 2.9% in Q3. Even more surprising here is this was almost entirely driven by spending on weapons, which grew 82% in Q3—equivalent to 89% of total dollar growth across fixed capital investment.
Nope, you didn’t just accidentally scroll into a report on North Korean GDP. Canada’s surge in spending on weapons was equivalent to more than 1 in 6 dollars added to GDP in Q3. Either the boost was temporary and the impact was minimal, or the country’s plan for economic growth just shifted from going all in on housing to weapons. Ironically, they both share a similar problem—weapons are ideally just made and sit. They don’t add to future economic capacity in the same way that tradeable goods and services do, as they’re non-income, non-market assets.
Canada’s latest GDP is an excellent example of why headline data doesn’t tell the whole story. Headline data shows substantial growth, but it doesn’t resemble what’s happening under the hood. The vast majority of growth was fueled by import compression, typically a sign of weak domestic demand skewed by the seasonal adjustment model and estimated data that couldn’t reflect reality. Meanwhile the growth in fixed capital doesn’t reflect a booming economy, but highlights business stagnation.
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