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MNI: Canada Q3 GDP Doubles Forecasts With 2.9% Annualized Gain


Canada's economy continued to outperform in the third quarter as GDP grew at a 2.9% annualized pace led by exports and government spending, while a flash estimate signaled output stalled at the start of the fourth quarter.

The quarterly GDP gain beat the central bank's forecast and the market consensus for growth around 1.5%. Export gains of 8.6% were led by greater oil shipments even as prices fell and also by farm products, Statistics Canada said Tuesday from Ottawa. Growth was slowed as household spending swung to a 1% decline from a prior gain of almost 10%, and investment in residential structures fell 15%, both reflecting the pinch of higher interest rates.

Bank of Canada Governor Tiff Macklem has said he must keep lifting his 3.75% policy interest rate to bring inflation back to the 2% target, and also that he's nearing the end of the tightening cycle that began at 0.25% earlier this year. Economists on balance predict the Bank on Dec. 7 will slow the pace to 25bps from the last decision of 50bps, though a large minority see another out-sized move.

Officials and investors say the economy is sliding towards recession in coming quarters, and StatsCan reported today that nominal GDP declined 0.7% on a quarter-over-quarter basis as the implicit price index fell 1.4% led by lower oil costs. It's the first decline in nominal GDP since early in 2020 and followed 4% gain in the second quarter.

That fall in the GDP implicit price index sharply contrasts with consumer price inflation running at about 7%, close to a four-decade high of about 8% set earlier this year.

Another sign of weakness came from StatCan's flash estimate that GDP was "essentially unchanged" in October as gains in transportation and construction were offset by declines in manufacturing and mining. The agency's official estimate for September showed a 0.1% increase, matching the market consensus. August's GDP gain was revised up to 0.3% from 0.1%.

Canada's third quarter GDP was also boosted slightly by a few unusual factors. Non-farm inventories rose a record CAD46.8 billion, and imports fell 1.5% led by lower energy prices.

Even if the economy stalls out, some former BOC advisers have said the weakness may be overstated with unemployment near record lows and the central bank's own forecast for inflation to remain above target until the end of 2024. 

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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