Canada economic growth slows in third quarter
Canada’s economic growth slowed in the third quarter on declines in motor vehicle purchases and housing investment, underpinning market expectations that the Bank of Canada will not hike interest rates next week.
Statistics Canada said on Friday that annualized growth between July and September was 2.0 percent, down from 2.9 percent in the second quarter. The pace of growth matched expectations of analysts in a Reuters poll.
In October, the Bank of Canada – which has hiked rates five times since July 2017 – boosted its estimate of third quarter annualized growth to 1.8 percent from 1.5 percent.
The central bank said interest rates still need to continue rising, given the strength of the economy. Market analysts though see little chance of improvement in the fourth quarter, given the falling price of oil, one of Canada’s main exports.
“I’d be shocked if the bank did anything with the rates next week,” said Doug Porter, chief economist at BMO Capital Markets.
Market expectations of an interest rate hike on Dec. 5, as reflected in the overnight index swaps market, stayed steady at 11.24 percent. Earlier this month, that figure was above 30 percent.
Although the index showed most market operators believe the bank will tighten again on Jan 9, Porter said in an interview he believed “it’s a closer call than the market is priced for. Today’s news reinforces that message.”
Adding to the uncertainty was Statscan data showing the economy shrank 0.1 percent in September from August following seven consecutive months of growth. Analysts in a Reuters poll had predicted a 0.1 percent increase.
“You do have to start asking questions about if the Bank of Canada is going to be able to throw caution to the wind a bit and lift rates in January,” said Andrew Kelvin, senior rates strategist at TD Securities.
The Canadian dollar weakened slightly to C$1.3308, or 75.14 US cents, on the data.
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