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Canada's economy flatlined in August, supporting expectations for another 50bp cut from the Bank of Canada - YAHOO FINANCE

NOVEMBER 06, 2024

Canada's economy did not grow in August, Statistics Canada data showed on Wednesday, as real gross domestic product (GDP) came in at 0 per cent on a monthly basis. But advance estimates show growth picking up in September.

The preliminary estimate for September means that third quarter growth is on track for 1 per cent annualized growth, according to Reuters, below the Bank of Canada's already reduced forecast of 1.5 per cent for the quarter. The central bank cut its third quarter growth projections in its monetary policy report released last week, from 2.8 per cent to 1.5 per cent. The central bank still expects growth to come in at 1.2 per cent in 2024.

"Today's GDP data confirm economic momentum is cooling after somewhat decent growth in the second quarter," TD economist Marc Ercolao wrote in a research note on Thursday, noting that there is still plenty of data to come before the Bank of Canada makes its final interest rate announcement of the year on Dec. 11.

"We don't think this will ring any alarm bells for the Bank but it puts more emphasis on their fears around a weakening economy. That said, we think the cumulative 125 basis points of cuts delivered to date will do its part in reigniting economic activity into the end of the year. Looking ahead, more cuts are on the way, with the focus now shifting to upcoming labour market and inflation data."

The Bank of Canada cut delivered a jumbo rate cut last week, slashing its benchmark rate by 50 basis point to 3.75 per cent. Governor Tiff Macklem has said Canadians can expect further rate cuts to support demand and keep inflation on target if the economy evolves broadly in line with its forecasts.

The anticipated third quarter weakness leaves a 50 basis point cut on table. Money markets increased their bets for another 50 basis point cut in December from about 18 per cent to more than 24 per cent after the GDP data was released, Reuters said.

"Canadian GDP was both trick and treat, with weakness at the start of Q3 followed by a solid rebound during its final month," CIBC economist Andrew Grantham wrote in a research note on Thursday.

"(For) now these data support our call for another 50 basis point cut at the next meeting in an effort to try and accelerate growth and reduce slack in the economy."

Corpay chief market strategist Karl Schamotta wrote in a note that third quarter growth that is on track to be below the Bank's forecasts is "keeping hopes for a half-point rate cut in December alive."

Canada’s economy grew 0.1 per cent in July, a revision lower from the 0.2 per cent initially reported from the data agency. Economists had expected the economy to be unchanged in August on a month-over-month basis, according to consensus estimates published by BMO Capital Markets.

Statistics Canada said advance information indicates that real GDP increased 0.3 per cent in September, with increases in finance and insurance, construction and retail trade helping partially offset declines in mining, quarrying and oil and gas extraction.

Growth in services in August helped offset a decline in goods-producing industries, Statistics Canada noted. Services edged up 0.1 per cent in August, driven by increases in finance, insurance and public administration sectors. Growth in the goods sector fell 0.4 per cent, the lowest level since Dec. 2021, driven by declines in the manufacturing and utilities sectors. The transportation sector also saw a decline of 7.7 per cent due to rail stoppages.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.


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