Canada’s economy grew at an annualized rate of 1 per cent in the third quarter, Statistics Canada said Friday, with real gross domestic product expanding 0.1 per cent in September. The economic expansion was below the Bank of Canada’s forecast of 1.5 per cent annual growth and slower than the 2.1 per cent increase seen in the second quarter.
While the quarterly results were in line with economists’ expectations, monthly growth was weaker than expected, with analysts expecting real GDP to grow 0.3 per cent in September. A preliminary estimate shows the economy expanding 0.1 per cent in October. Canada’s economy was unchanged in August, with GDP growth coming in at 0.0 per cent.
On a per capita basis, GDP fell 0.4 per cent in the quarter, marking the sixth straight quarterly decline.
CIBC economist Andrew Grantham noted that the weaker-than-expected end to the third quarter “suggests that growth may not pick up as much as the Bank of Canada expects in the fourth quarter.” The central bank had expected economic growth in the fourth quarter to reach 2%. “Today’s GDP numbers point to a weaker trend in recent activity than the Bank of Canada had anticipated, supporting a 50-basis point cut at the December meeting,” CIBC economist Andrew Grantham wrote in a note on Friday.
Statistics Canada said third-quarter growth was driven by higher household and government spending, which offset slower growth in non-farm inventory build-ups, a decline in business investment capital and a decline in exports.
BoC Deputy Governor Reyes Mendes said in a speech this week that the central bank will be closely monitoring a range of indicators, including the release of GDP data on Friday, ahead of its next interest rate decision on Dec.11.
Canadian GDP monthly Impact on USD/CAD
USD/CAD has seen a notable rise after hitting a three-day low near 1.4037 during the North American session on Friday. The rally came after Statistics Canada reported slower-than-expected GDP growth in September. The data showed the Canadian economy grew by 0.1%, after remaining flat in August, while expectations were for growth of 0.3%. This slowdown in economic growth pushed the Canadian dollar lower against the US dollar.
The agency also reported that GDP growth in the third quarter of the year was 0.3%, which is lower than 0.5% in the second quarter. Compared to the same period last year, growth was 1%, reflecting a slowdown compared to growth of 2.2% in the second quarter. This data reinforces expectations that the Bank of Canada may move towards further interest rate cuts, after the bank cut interest rates by 50 basis points in October, indicating a flexible monetary policy to keep pace with economic challenges.
In contrast, the US dollar witnessed some recovery, which helped push the Canadian dollar pair higher. The US dollar recovered some of its losses on the same day, reflecting the possibility of forming a short-term bottom. Also, the US dollar index (DXY), which measures the value of the dollar against six major currencies, recorded an increase after reaching a two-week low near 105.60. The correction in the US dollar is believed to have come after US President-elect Donald Trump announced the appointment of Scott Bessent as Treasury Secretary, with market participants expecting Bessent to pursue a gradual dovish trade policy, reducing inflationary pressures in the short term.
The Impact of Monthly GDP Growth on Canada’s Economy
The monthly GDP growth figure is an important economic indicator for Canada, as it reflects the economic health and direction of the country’s economy.
Here’s a breakdown of how it impacts Canada’s economy:
1. Economic Growth and Recession Indicators
– Positive month-to-month GDP growth: When Canada’s GDP grows month-to-month, it indicates that the economy is expanding. This can lead to:
– Higher consumer confidence: People are more likely to spend and invest when they feel the economy is strong.
– Increased business investment: Companies may expand their operations or hire more workers in response to increased demand.
– Government policy impact: Positive growth may reduce pressure on policymakers to take corrective action (e.g., lower interest rates), and may lead to increased tax revenues.
2. Sector-specific impacts
Monthly GDP growth reflects changes in different sectors of the economy, such as:
– Manufacturing: A slowdown in manufacturing may indicate a decline in production and may impact exports, leading to weaker economic performance.
– Services: If services such as retail, finance or healthcare are performing well, this indicates strong domestic consumption and can lead to increased job creation.
Sectoral changes also impact the broader Canadian economy and affect regional economic conditions, government budgets and employment rates.
3. Impacts on the Canadian Dollar and Inflation
– Currency Value: Strong monthly GDP growth often leads to a stronger Canadian dollar as foreign investors look for opportunities in a growing economy, which in turn can make Canadian exports more expensive. Conversely, weak GDP growth can lead to a decline in the value of the Canadian dollar.
– Inflationary Pressures: If GDP growth is accompanied by rising demand, this can lead to inflation. In this case, the Bank of Canada may raise interest rates to control inflation.
