Canada | The economy declines for the sixth quarter in a row

(Ottawa) Real GDP per capita fell for the sixth straight quarter as higher interest rates continued to weigh on business investment.

Statistics Canada’s gross domestic product (GDP) report indicates that the Canadian economy grew at an annualized rate of 1% in the third quarter, down from 2.2% in the second quarter.

This rate is in line with economists’ expectations, but lower than the Bank of Canada’s October forecasts, which forecast growth of 1.5%.

Real GDP per capita fell 0.4% during the quarter.

Economists reacting to the latest GDP figures continue to be divided over whether the Bank of Canada will cut its key interest rate by a quarter or half a percentage point at its meeting this month next.

TD’s chief economic officer, James Orlando, wrote in a note to clients that despite growth falling short of the central bank’s forecasts, “the momentum in the economy should be evidence enough to that the [Banque du Canada] reduce the rate of decline.

For his part, Andrew Grantham, senior economist at CIBC, said weaker growth warranted a sharper cut in interest rates, “although next week’s employment numbers will likely be more important to take a final decision.

The November Labor Force Survey is due to be released next Friday.

Statistics Canada’s GDP report said higher household and government spending was partly offset by slower inventory accumulation, lower business capital investment and lower exports.

Economic growth remained weak in September, with real GDP increasing by 0.1%. A preliminary estimate suggests that the same tepid pace of growth was also observed in October.

Despite the slowdown in growth, however, household net saving increased in the third quarter, as disposable income increased twice as fast as spending.

The report said high wages and lower interest rates helped the household savings rate reach a three-year high in the third quarter, at 7.1%.

In comparison, it was less than 3% at the end of 2019.

“This continued acceleration in the savings rate now suggests to me that Canadians are continuing to save money for upcoming mortgage renewals in 2025 and 2026,” said Randall Bartlett, senior director of Canadian economics at Desjardins, during an interview.

Carolyn Rogers, senior deputy governor of the Bank of Canada, noted in a speech earlier this month that more than four million mortgages, or about 60% of all mortgages in force, will be renewed over the next year. of the next two years.

Most of these borrowers will likely face significant increases in their payments, she noted.

Last month, Bank of Canada Governor Tiff Macklem announced a half-percentage point cut in the policy rate in response to inflation returning to the central bank’s 2% target, but said the size of the next reduction would be determined by upcoming economic data.

The central bank’s key rate is currently 3.75%.

Canada’s annual inflation rebounded to 2% in October after falling to 1.6% the previous month.

Mr. Bartlett said that while the details of the latest GDP report were sparse, the trend toward a significant upward revision in growth for this period suggests that there is less spare capacity in the economy than is currently the case. one might believe it.

“So we think this very strongly reinforces our call for a 25 basis point cut in December, as opposed to a 50 basis point cut,” Bartlett said.