Economic Forecast Missed as GDP Remains Stagnant
OTTAWA (Reuters) – Canada’s economy experienced minimal fluctuation for the third consecutive month in October, falling short of growth predictions. However, recent data from Statistics Canada indicates that there may have been a slight increase in gross domestic product (GDP) in November.
Analysts surveyed by Reuters had initially projected a month-over-month growth rate of 0.2%. Unfortunately, September’s GDP was revised downward to zero growth from the previously reported 0.1% growth.
According to Statscan’s preliminary estimate for November, GDP likely grew by 0.1%. This growth is attributed to positive developments in the manufacturing, transportation and warehousing, as well as the agriculture, forestry, fishing, and hunting sectors.
However, economic growth has been hindered by the impact of the Bank of Canada’s (BoC) ten interest rate hikes between March 2022 and July. Additionally, a strike along the St. Lawrence Seaway negatively affected GDP, with the transportation and warehousing sector experiencing a 0.2% decline.
Despite these setbacks, the retail trade sector experienced its highest growth rate since January, contributing to overall gains. Moreover, the mining, quarrying, and oil and gas extraction industries rebounded after two consecutive monthly declines.
While the goods-producing sector in Canada experienced a slight decline, the services sector saw a 0.1% increase.
Bank of Canada Considers Potential Rate Cuts
The Canadian dollar remained relatively stable, trading at 1.3282 against the US dollar, or 75.29 U.S. cents, after earlier reaching its highest level in almost five months at 1.3267.
The Bank of Canada has maintained its key policy rate at a 22-year high of 5% since July, assessing whether rates are sufficient to bring inflation back to its 2% target.
This week’s data revealed that Canada’s annual inflation rate unexpectedly remained steady at 3.1% in November. Although inflation has decreased from its peak of 8.1% last year, it has consistently remained above the central bank’s target since early 2021.
While the bank has refrained from predicting rate cuts, financial markets anticipate a reduction in interest rates starting in April.
Governor Tiff Macklem, in a recent interview on BNN TV, stated that the bank may begin implementing rate cuts next year if core inflation aligns with projections.
The bank’s forecast anticipates a cooling inflation rate of 2.5% by the end of 2024, returning to the 2% target by the conclusion of 2025.
The Bank of Canada will release fresh economic projections concurrently with its next rate announcement on January 24th, following the publication of jobs and inflation data for December.