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MONTREAL: Canada's economy grew at an annual rate of 5.4 percent in the third quarter, rebounding sharply from a slowdown in the prior three months, according to government data released Tuesday.

The expansion was faster than analysts had expected, driven by a surge in spending by Canadian households as pandemic restrictions were lifted, and growth in exports, especially oil, Statistics Canada reported.

However, the second quarter contraction was revised down to 3.2 percent, worse than the 1.1 percent drop originally reported.

In the July-September period, GDP grew 1.3 percent compared to the prior quarter, according to the data.

Consumers snapped up goods, with double-digit increases in spending on clothing and footwear, sending the totals above pre-pandemic levels.

Demand for services also surged, with big jumps in spending on transportation, recreation and culture, as well as food, beverage and accommodation, according to the report.

As "households and businesses, in Canada and elsewhere resumed normal operations," this "raised household spending and created a greater demand for exports," the report said.

But after four quarters of strong growth, investments in housing declined, with the largest quarterly drop in new home construction since 2009, the agency said.

With the expanding economy, compensation for employees saw the biggest increase since 2000, while the household savings rate slowed but again rose by double digits.

However, analysts noted the downward revision for the second quarter meant the last six months were a bit disappointing, while a new strain of Covid-19 could weigh on the final three months of the year.

"Canada's economy surprised to the upside in Q3 growth, but will anyone care given the threat that the omicron variant could pose for the next few quarters?" said Avery Shenfeld of CIBC Economics.

"Attention in upcoming days will still be on how the omicron variant, should it prove to be vaccine resistant, might set back the timing of the next leg up for economic activity," the analyst noted.

The Bank of Canada last month signaled it could begin to raise interest rates as soon as April, as inflation is expected to remain above the target range of one to three percent.

Inflation hit an 18-year high of 4.7 percent in October.

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