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Result leaves chances of a jumbo interest rate cut at 50-50
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Published Nov 29, 2024 • Last updated 3 hours ago • 3 minute read
Consumers, along with government spending, were the largest contributors to third-quarter GDP, Statistics Canada said on Nov. 29, 2024. Photo by Getty Images
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Canada’s economy grew at an annualized rate of one per cent in the third quarter, below the Bank of Canada’s 1.5 per cent forecast, but in line with what some economists were expecting.
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Friday’s data has economists predicting further cuts to the Bank of Canada’s policy rate, although the likelihood of a 50-basis-point cut at December’s meeting remains a toss-up.
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The one-per-cent reading was expected by forecasters at the Royal Bank of Canada and Canadian Imperial Bank of Commerce, but fell short of the Bank of Montreal‘s 1.3 per cent prediction and Toronto-Dominion Bank‘s 1.4 per cent forecast. Bank of Nova Scotia forecasted annualized growth of 0.8 per cent for the quarter.
Growth was driven by an increase in household and government spending, according to data released by Statistics Canada. Household spending increased by 0.9 per cent and government spending increased for the third consecutive quarter, growing by 1.1 per cent. Spending across all levels of government increased.
“Another jump in government expenditures accounted for 1.2 percentage points of GDP growth (i.e. GDP would have declined outright without it) — and half of the 2.4 per cent increase in final domestic demand,” said Nathan Janzen, assistant chief economist at the Royal Bank of Canada, in a note to clients.
Housing investment increased by 0.9 per cent, driven mainly by increased activity in the resale market. Spending on renovations declined by 0.4 per cent and new construction declined by 0.1 per cent.
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Exports of goods and services declined by 0.3 per cent, after declining by 1.4 per cent in the previous quarter. Imports also declined by 0.1 per cent. Business investment fell in the quarter, with spending on equipment and machinery declining by 7.8 per cent.
Corporate income also fell by 1.1 per cent, after increasing by 2.1 per cent the previous quarter. The decline was driven by weakness in non-financial sectors, including the motor vehicle manufacturing, wholesale and retail sectors.
“If the consumer has responded well to lower rates, the same cannot be said for businesses — they’re still refinancing at rates way above their current interest payments, and private investment has collapsed as a result,” said David Rosenberg, president and founder of Rosenberg Research & Associates Inc., in a note. “What’s more, private businesses are clearly in a deep funk, and that’s the piece of this GDP report the Bank of Canada needs to focus on.”
GDP per-capita declined for the sixth consecutive quarter, falling by 0.4 per cent. This measure has been negative in eight out of the last nine quarters.
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Statistics Canada noted that the household savings rate reached a three-year peak of 7.1 per cent, up from 6.2 per cent during the second quarter. The increase in savings came as the Bank of Canada cut its policy rate by 75 basis points during the three-month period.
Overall compensation for employees rose by 1.7 per cent during the quarter, driven by wage growth in finance, real estate, company management and educational services.
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Monthly growth for September came in below expectations at 0.1 per cent and an advance estimate for October also pegged monthly growth at 0.1 per cent.
“As a result of the September and October figures, early tracking for the final quarter of the year is around one per cent (assuming 0.1 per cent increases in November and December), which will once again fall short of the Bank of Canada’s monetary policy report projection (in this case two per cent),” CIBC senior economist Andrew Grantham said in a note.
• Email: jgowling@postmedia.com
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