By Paul Vieira

OTTAWA -- Canada's economy expanded in the third quarter after a steep decline in the previous three-month period, powered by energy exports and household consumption.

Canada's gross domestic product, the broadest measure of goods and services produced in an economy, climbed at a 3.5% annualized rate in the third quarter, to C$1.80 trillion ($1.33 trillion), Statistics Canada said Wednesday. Expectations were for a 3.4% advance, according to economists at Royal Bank of Canada.

Industrial output in September, the final month of the quarter, rose 0.3%, also on the strength in the commodity sector, the data agency said. This marked the fourth consecutive month-over-month gain.

In the third quarter, net trade boosted Canadian output. Energy sales abroad climbed 6.1% on a non-annualized basis, following a comparable 5.1% drop in the second quarter, which reflected the negative fallout from wildfires in western Canada. Those fires forced energy producers to either curtail or shut down production last spring.

Second-quarter gross domestic product was revised to an annualized decline of 1.3%, slightly better than the original 1.6% estimated decline for the April-to-June period.

Mark Chandler, head of foreign-exchange and fixed-income research at RBC Capital Markets, said Wednesday's report was largely in line with expectations, including the composition of growth. He said the strong September showing could lead to a better-than-expected fourth-quarter performance for the Bank of Canada.

"The report is not going to influence rate policy that much, as the bank has said it would require a substantial shock to knock it off its current stance," Mr. Chandler said. "We still have a fair degree of slack in the economy so there's a lot of work left."

The economy is expected to slow in the fourth quarter, with total output advancing by a tepid 1.1% for 2016 and around 2% next year. Investment in housing, an important source of growth for the economy this decade, declined in the third quarter after nine consecutive quarterly gains. The data agency said a new tax introduced in British Columbia that applies to foreign buyers of properties weighed on housing.

In a speech this week, Bank of Canada Gov. Stephen Poloz said Canada is slowly digging itself out of the deep hole created by lost manufacturing capacity and lower commodity prices, and the economy is on course to reach full capacity sometime in mid-2018. He added that uncertainty still remains at elevated levels, and may not dissipate until the incoming Trump administration begins introducing policies.

Mr. Poloz said the gross domestic product report would help guide the central bank when it begins deliberations ahead of its next rate-decision meeting on Dec. 7. The central bank left its policy rate unchanged at 0.5% in October, although Mr. Poloz said officials had "actively discussed" further easing.

Besides exports, Canada's economy got a boost in the quarter from household spending, which rose 0.6% on a non-annualized basis. Outlays were focused mostly on services. Inventories also lifted output, climbing C$4.59 billion. A rise in inventories tends to signal that production exceeded consumption in the quarter.

Business investment, which has plunged in Canada amid the sharp fall in commodity prices that started in mid-2014, fell 0.5% in the third quarter, or the eighth straight quarter-over-quarter drop.

Real gross national income, or a measure of purchasing power from Canadian production, rose 0.9% in the quarter. The country's terms of trade -- or what the country pockets in income from its exports once the cost of imports are accounted for -- improved for a second consecutive quarter.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 30, 2016 09:59 ET (14:59 GMT)

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