Canada’s economy grew 1 per cent annually in the third quarter, Statistics Canada said on Friday, as real gross domestic product (GDP) expanded by 0.1 per cent in September. With the economic expansion below the Bank of Canada’s already-revised forecast, and a weak start to the fourth quarter, the odds of a 50 basis point rate cut in December edged up on Friday.
While quarterly results were in line with economist expectations, the monthly growth was weaker than expected, as analysts had forecast real GDP to grow 0.3 per cent in September. Advance estimates show the economy increased 0.1 per cent in October, with increases in real estate and rental and leasing, transportation and warehousing, and retail trade offsetting declines in construction and mining, quarrying, and oil and gas extraction.
On a per capita basis, GDP fell 0.4 per cent in the quarter, marking the sixth consecutive quarterly decline.
After the release, traders in overnight swaps increased their bets for another-half point cut from the central bank, according to Bloomberg, putting the odds at over a third, from a one in four chance previously.
CIBC economist Andrew Grantham noted that the weaker-than-expected end to the third quarter “suggests growth may not pick up as much as the Bank of Canada expects in Q4.” The central bank had forecast fourth quarter economic growth to come in at 2 per cent.
“Today’s GDP figures point to a weaker recent trend in activity than the Bank of Canada was expecting and is supportive of a 50 basis point cut at the December meeting, although next week’s employment figures are still likely more important in making a final determination,” CIBC economist Andrew Grantham wrote in a note on Friday.
Growth in the third quarter was led by higher household and government spending, offsetting slower growth in non-farm inventory accumulation, lower business investment capital and lower exports, Statistics Canada said.
Statistics Canada also updated previous GDP estimates on Friday, with BMO Capital Markets chief economist Douglas Porter noting that “growth has been revised markedly higher for each of the past three years.” While he said that “there is no debate that the economy struggled through mid-summer and the early fall”, there are signs that “domestic demand is stirring.”
The household savings rate hit a three year peak of 7.1 per cent in the third quarter, Statistics Canada said, as disposable income increased at nearly double the rate of spending.
“For the Bank of Canada, we don’t see enough here to push the Bank to cut aggressively again in December — especially in light of the hefty upward revisions, even to this year. We’re still in the 25 basis point camp,” Porter wrote.