Statistics Canada published a report on Friday, November 28th detailing the Gross Domestic Product (GDP) results for the third quarter (July, August, September) and the *good* news is that Canada narrowly avoided a “technical” recession (which economists define as two consecutive quarters of shrinking GDP).

In the third quarter, Canada’s GDP grew at a rate of 2.6 per cent (annualized), led largely by more oil exports and a substantial increase in military spending by the federal government (which has committed to achieving military spending equivalent to 5 per cent of our GDP by 2035 to meet NATO goals). Unfortunately, that part of the story is really the only good news, and if you dig a bit under the surface, there’s a lot of hidden bad news in the numbers.

Business investment (the amount of money that businesses are spending on equipment, inventory and hiring) was largely unchanged from the second quarter and stands at a very weak level overall, while household spending on retail goods actually declined (more money was being allocated towards rents and basic financial services, leaving less disposable income for other purchases). Both of these factors indicate an overall weak economy teetering on the brink of further decline, since consumers can’t spend more money on goods and services if their wages are stagnant and businesses aren’t hiring, and businesses can’t invest more in equipment and hiring until they can confidently expect more demand for their goods and services.

What’s more, when you really dig into the numbers, it turns out that the 2.6 per cent amount itself is a bit misleading, due to how GDP is actually calculated. The formula for GDP is

GDP = Consumption + Investment + Government Spending + Net Exports

where “Net Exports” is Canada’s total exports minus total imports. In Q3, our net imports shrank significantly compared to the previous quarter, which makes the Net Exports number higher this quarter than last. However, when you strip out the fact that a big one-time import of an oil-and-gas module happened in Q2 and then didn’t happen in Q3, the GDP growth in Q3 is actually closer to 1.7 per cent.

So, while a positive GDP growth number is a good thing, it doesn’t mean our economy is back on track or rebounding in any meaningful way. Both the “Consumption” and “Investment” parts of the formula are weak and getting worse, and only the “Government Spending” and some heavy resource exports are papering over that weakness to give us positive GDP growth. Now, if all goes to plan based on the recent Liberal Budget, the government spending will translate into business investment and job growth, which will then lead to higher consumption, and we’ll have strength in all four factors by 2030.

Fingers crossed…

As far as variable rate mortgages are concerned, this GDP report is likely going to strengthen the Bank of Canada’s (BoC) “wait and see” stance and so we still believe there will be no change to the policy lending rate at the last BoC meeting of 2025 coming up in a few weeks. The primary mandate of the BoC is to control inflation, not drive GDP growth, and so the BoC is only going to cut its policy rate further if GDP becomes so weak over a prolonged period that inflation seems likely to drop below 2 per cent. On the plus side, there’s also nothing in this report to make it look like inflation is going to be going up anytime soon, so the changes of the BoC increasing the policy rate also look very unlikely for the next 6-12 months (or longer).

As far as fixed mortgage rates more generally (which are influenced by government bond yields), it seems likely we’re at a low point now and that rates will remain relatively low while our economy is soft through 2026.