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GDP Surprises Softer In Q3 Amidst Particularly Mixed Report

  • Real GDP was softer than expected in Q3, slowing to -1.1% annualized (cons 0.1) for worse than any analyst expected and far below the +0.8% the BoC had forecast in its October MPR.
  • However, the impact was offset by a large upward revision to Q2, now seen at 1.4% vs the prior -0.2%.
  • There’s a lot to unpack within the details. Contrary to the swing in GDP growth rates, final domestic demand has been very consistent for the past two quarters, printing 1.3% after 1.2% and probably exactly the sort of below-trend pace the BoC would want to see to dampen inflationary pressures in a controllable manner.
  • What’s changed from a GDP perspective is that net exports have swung from a 0.0pps non-annualized contribution to -0.3pp (mainly on export weakness, with a 5% annualized contraction the largest since 2Q21) and the change in inventories switching from 0.0pp to a -0.2pp non-annualized drag.
  • That said, the latest steady domestic demand growth belies an oversized contribution from the public sector. Government consumption surged 7.3% annualized in Q3 for its strongest since 2H20 and before that 2008.
  • Private sector demand was much weaker: household consumption increased 0.1% annualized after -0.1% whilst business investment fell 2% after a rare 4.5% increase back in Q2.
  • As for the strong Q2 upward revision, it was led by business investment (4.5% annualized vs initial 1.6%) and changes in inventories (0.0pp non-annualized vs -0.2pp). Net exports also helped (0.0pp non-annualized vs -0.1pp) as stronger export growth (5.1% vs 0.4%) was in large part offset by stronger import growth (4.4% vs 1.9%).

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