The latest economic numbers paint an unexpected picture for Canada’s recovery path, and it’s not the familiar tech-driven story many were anticipating.
When Statistics Canada released this quarter’s GDP figures showing 3.1% annualized growth, economists scrambled to explain what seemed like a statistical anomaly. After three quarters of near-stagnation, Canada’s economy has suddenly found its footing – but the drivers behind this rebound reveal something fascinating about our current economic moment.
Defence spending and residential construction have emerged as the twin engines powering Canada’s economic revival. The Department of National Defence’s accelerated procurement initiatives injected nearly $3.8 billion into manufacturing and services, while housing starts jumped 18% compared to last quarter.
“We’re seeing a complete reversal from the investment patterns of 2023,” explains Heather McKenzie, chief economist at Royal Bank of Canada. “Last year’s tech and knowledge economy focus has given way to what I’d call ‘concrete economics’ – literal bricks, mortar, and military hardware.”
This shift arrives at a curious juncture. While the U.S. tech sector continues its bull run, Canada appears to be charting a different course, leaning into traditional economic drivers that many analysts had written off as growth sectors.
Behind the numbers lies a complex story of policy responses and global positioning. The federal government’s defence commitments to NATO have accelerated spending timelines, creating immediate economic activity. Meanwhile, the housing push represents both crisis response and strategic investment.
“These aren’t just numbers on a spreadsheet,” says James Thorpe, who leads the infrastructure investment team at Desjardins. “When you pour concrete for military facilities in Cold Lake or frame houses in Mississauga, you create jobs that can’t be outsourced and require domestic materials.”
Walking through Toronto’s Liberty Village last week, the evidence was visible everywhere. Construction cranes dot the skyline while manufacturing facilities on the city’s edges have retooled to support military contracts for everything from advanced communications systems to vehicle components.
The Bank of Canada’s response has been cautious optimism. In their latest monetary policy report, they noted this growth represents “tangible asset creation rather than consumption-driven expansion,” suggesting they view it as potentially more sustainable than previous recovery patterns.
For everyday Canadians, this rebound manifests in surprising ways. Employment in trades and manufacturing has surged 4.2% year-over-year, creating opportunities for workers without advanced degrees. Wage growth in these sectors has outpaced inflation for the first time since 2019.
Michael Sabia, Deputy Minister of Finance, noted during last week’s economic outlook conference that “this growth pattern distributes economic benefits differently than tech-centered expansion.” The geographic spread of benefits extends beyond Toronto, Montreal and Vancouver into smaller regional manufacturing hubs.
Critics, however, question the sustainability of a recovery built on these foundations. Avery Williams at the Progressive Economics Forum points out that “defence spending doesn’t create the same innovation spillovers as research-intensive sectors,” and worries about long-term productivity implications.
The housing component brings its own contradictions. While construction boosts GDP figures, the persistent affordability crisis continues to strain household finances. The average home price in major urban centers remains 8.7 times the median household income, well above historical norms.
Global factors also play into this economic narrative. Rising geopolitical tensions have prompted NATO members, including Canada, to accelerate defence commitments. Meanwhile, immigration targets have maintained pressure for housing expansion despite high interest rates that would typically cool construction.
What makes this recovery particularly interesting is how it contrasts with previous cycles. Rather than being led by resource extraction or financial services – historical Canadian economic drivers – this growth centers on physical infrastructure and security priorities.
“We’re essentially building national resilience,” explains Sameer Aggarwal, director at the Centre for Policy Alternatives. “Whether intentional or not, Canada is investing in tangible assets during a period of global uncertainty.”
The question facing policymakers now is whether to lean into this pattern or attempt to diversify. Innovation Minister François-Philippe Champagne recently signaled support for this balanced approach, announcing new initiatives to strengthen domestic manufacturing while maintaining commitments to digital economy development.
For investors and business leaders, the message is clear: Canada’s economic landscape is changing. Companies positioned at the intersection of physical infrastructure, security, and sustainability may find themselves with unexpected tailwinds.
As winter approaches and construction naturally slows, economists will be watching closely to see if this momentum carries forward. Defence contracts typically span multiple quarters, providing some stability, but housing remains vulnerable to seasonal patterns and interest rate decisions.
What seems certain is that Canada’s recovery story has taken an unexpected turn – one that challenges conventional wisdom about modern economic development. In embracing the concrete over the digital, at least for now, Canada may be hedging against the volatility that has characterized much of the global economy in recent years.
Whether this represents a temporary deviation or a more fundamental shift in Canada’s economic identity remains to be seen. But for now, the cranes keep rising, and the factories keep humming.
