Canada’s Economy Grows at 1% Annualized Rate in Third Quarter
Canada’s economy expanded at an annualized rate of 1% in the third quarter, missing the Bank of Canada’s forecast of 1.5%. The data released by Statistics Canada on Friday also showed that the economy’s growth was driven by consumer spending and government expenditure, but was offset by declining business investments.
On a per capita basis, the standard of living shrank by 0.4% in the third quarter, its sixth consecutive quarterly decline. The data has prompted currency markets to increase their bets on a rate cut next month, with some analysts predicting a 50-basis-point reduction in interest rates.
The Bank of Canada has reduced borrowing costs by 125 basis points since June to 3.75% as the annual inflation rate fell back towards its 2% target and the bank grew more concerned about the economy’s sluggish growth. The GDP data and an employment report due next month will influence the bank’s decision on an expected rate cut at its last monetary policy decision of the year on December 11.
Currency markets have increased their bets for a 50-basis-point rate cut to around 44% from 31% earlier, with some analysts fully pricing in a 25-basis-point rate cut. The statistics agency revised the second-quarter annualized growth to 2.2% from 2.1%.
Economists predict that the fourth quarter will not be inspiring, with a looming threat from proposed 25% tariffs by US President-elect Donald Trump and immigration curbs likely to affect the economy. Business investments in machinery and equipment dropped by 7.8% in the third quarter, while housing renovations and new construction fell by 0.4% and 0.1%, respectively. Exports of goods and services also declined by 0.3%.
Household spending grew by 0.9% and was one of the main drivers of the growth, along with continued government expenditures. The Canadian dollar weakened slightly, trading at C$1.4028 to the US dollar, or 71.29 US cents.
