Canada's Economy Misses Forecasts, Raises Rate Cut Expectations

Canada's economy has reported a growth of only 1 percent annually in the third quarter, falling short of the Bank of Canada's (BoC) expectations. This disappointing performance has led to increased speculation about a potential rate cut in December, as economic indicators suggest a weaker outlook for the fourth quarter.

Key Takeaways

• Canada's GDP grew by 1% annually in Q3, below BoC forecasts.
• Monthly growth in September was only 0.1%, lower than the expected 0.3%.
• Odds of a 50 basis point rate cut in December have increased significantly.
• Per capita GDP fell by 0.4%, marking the sixth consecutive quarterly decline.
• Economic growth was primarily driven by household and government spending.

Economic Performance Overview

Statistics Canada released data indicating that the country's real gross domestic product (GDP) expanded by just 0.1 percent in September. This growth rate was below the expectations of economists, who had predicted a 0.3 percent increase. The overall annual growth rate of 1 percent for the third quarter is also a cause for concern, as it is significantly lower than the Bank of Canada's revised forecasts.

The advance estimates for October suggest a slight increase of 0.1 percent, with growth in sectors such as real estate, transportation, and retail trade. However, this was offset by declines in construction and mining activities.

Rate Cut Speculations

Following the release of the GDP figures, traders in overnight swaps have raised their bets for a potential 50 basis point cut from the central bank. The odds of such a cut have increased to over one-third, up from a previous estimate of one in four. Analysts believe that the current economic conditions, including falling living standards and restrictive policies, support the case for a rate cut.

Kyle Chapman, an FX market analyst, emphasized that with inflation at target levels and living standards declining, there is little reason for the Bank of Canada to refrain from implementing a 50 basis point cut in December.

Future Economic Outlook

CIBC economist Andrew Grantham noted that the weaker-than-expected performance in the third quarter suggests that growth may not rebound as anticipated in the fourth quarter. The Bank of Canada had previously forecasted a growth rate of 2 percent for Q4, but current trends indicate a more subdued outlook.

The growth in the third quarter was primarily driven by increased household and government spending, which helped offset slower growth in non-farm inventory accumulation and lower business investment. However, the overall economic activity has shown signs of weakness, raising concerns about the sustainability of this growth.

Conclusion

The recent economic data from Canada paints a concerning picture, with growth falling short of expectations and increasing speculation about a rate cut in December. As the country navigates these economic challenges, the focus will be on upcoming employment figures and their potential impact on the Bank of Canada's monetary policy decisions. The situation remains fluid, and further developments will be closely monitored by economists and policymakers alike.

Sources

• Canada's economy misses BoC forecast, pushing up odds of jumbo rate cut in December, Yahoo.
• Canada's economy misses BoC forecast, pushing up odds of jumbo rate cut in December, Yahoo.
• Yahoo is part of the Yahoo family of brands, Yahoo.
• Yahoo is part of the Yahoo family of brands, Yahoo.