Canada's Surprise Growth & a $70B Bet

What happened: Canada’s economy grew at a surprising 2.6% annualized rate in the third quarter, strongly beating expectations and avoiding a technical recession. The unexpected growth was not driven by consumers, as household spending fell. Instead, the surge was caused by a massive 82% increase in government military spending and a rebound in crude oil exports.

Why it matters: The specific drivers of the GDP growth point to strength in select industries. The surge in military spending puts a spotlight on Canadian defence companies like CAE Inc. and MDA Ltd. At the same time, strong crude oil exports benefit major producers like Suncor Energy and Canadian Natural Resources. This highlights how government spending and global demand are creating opportunities in specific sectors, even as the domestic consumer economy shows signs of weakness.

What happened: The United Arab Emirates (UAE) announced a framework agreement to invest up to $70 billion in Canada. The landmark deal represents a major vote of confidence in the Canadian economy. The investment is part of a strategic partnership between the two nations, intended to diversify Canada's sources of foreign capital and bolster key industries.

Why it matters: This capital is specifically targeted at high-growth industries where Canada has a competitive advantage. The investment will focus on critical minerals processing, artificial intelligence (AI), energy, and logistics. This provides a potential catalyst for companies in these sectors, including mining firms like Teck Resources, AI-focused tech companies like Coveo Solutions, and energy infrastructure giants like Enbridge, creating a clearer picture of future growth areas for investors. However, the timing and mechanism of this investment remain uncertain.

What happened: Foreign direct investment (FDI) into Canada fell to $18.2 billion in the third quarter, its lowest point in a year and a half. This was a sharp drop from the $29.9 billion invested during the same period last year. For the second consecutive quarter, more investment money left Canada than came in, signaling that global investors may be finding better growth opportunities in other countries.

Why it matters: A sustained drop in FDI is a cautionary signal for the broader Canadian economy. This type of long-term investment often brings new technology and creates jobs, so a decline can lead to slower economic expansion and a weaker Canadian dollar. It particularly impacts capital-intensive sectors like energy and mining, which often rely on foreign capital to fund large-scale projects, potentially putting downward pressure on their stock valuations.