Canada’s economy likely stalled in October
OTTAWA — Canada’s economy performed much better than expected in the third quarter, but an early indication that growth stalled in the fourth quarter could prompt the Bank of Canada next week to slow its campaign to hike interest rates.
Canada’s economy grew at an annualized rate of 2.9 per cent in the third quarter, above expectations, while GDP most likely was unchanged in October after a 0.1 per cent gain in September, Statistics Canada data showed on Tuesday.
Analysts surveyed by Reuters had expected thirdquarter annualized growth of 1.5 per cent and a gain of 0.1 per cent in September.
“The headline beat on Q3 GDP looks like a bit of a head fake,” said Royce Mendes, director and head of macro strategy at Desjardins, pointing to a reliance on external demand and volatile categories.
Third-quarter final domestic demand fell 0.6 per cent.
“Moreover, the monthly data suggest that the economy began the fourth quarter on weak footing. As a result, we continue to see the Bank of Canada hiking rates only 25 basis points next week,” Mendes said.
The Canadian central bank raised rates by 50 basis points last month, lifting its policy rate to 3.75 per cent, the highest since January 2008. It also forecast growth would stall from the fourth quarter this year through the middle of next year.
Money markets are betting on a 25-basis-point increase on Dec. 7, with a roughly 25 per cent chance of a larger move.
Quarterly growth was driven by a rise in exports, non-residential structures, and business investment in inventories, Statscan said, adding that declines in housing investment and household spending were moderating factors.
Exports were up 2.1 per cent, rising for the second consecutive quarter, led by crude oil and bitumen, and farm and fishing products. Imports fell 0.4 per cent in the third quarter, reflecting widespread declines in energy products, including crude oil, natural gas, and nuclear fuel.
The Canadian Dollar touched its weakest level in nearly three weeks at 1.3557 to the greenback, or 73.76 U.S. cents, after the GDP data, down as much as 0.4 per cent.