Are more oversized cuts on the way?
Canada’s economy stalled in August and probably expanded only slightly in September, likely leaving the door open for the central bank to push ahead with further rate cuts.
New data released by Statistics Canada on Thursday showed gross domestic product (GDP) remained unchanged in August and likely grew by 0.3% in September, a performance that would mean overall growth of 1% in Q3 – lower than the Bank of Canada’s forecast.
A manufacturing slowdown was one of the main factors behind that sluggishness, with the sector contracting by 1.2% in August as auto industry maintenance shutdowns and a regression in utilities and wholesale trade growth also weighed against the economy’s performance.
Overall growth of 1% in the third quarter would see per-person GDP slide for the eighth time in nine quarters, a Royal Bank of Canada (RBC) analysis noted, with a further softening of the economy likely in the months ahead.
The finance and insurance industries were among the only sectors to post growth, seeing expansion of 0.5% in August, while public administration, oil and gas extraction, and retail sales saw mild improvement.
With the Bank of Canada already having cut rates four times since June amid signs of a tepid economy, RBC economist Claire Fan said an oversized cut – which would mark its second in a row – is probably on the way in its next announcement. “Rate cuts from the Bank of Canada impact the economy with a lag and the level of interest rates is still high,” she wrote.
“Soft GDP growth is reinforcing that inflation is more likely to drift broadly lower rather than higher, and is consistent with our base-case that the BoC will cut the overnight rate by another 50 basis points in December.”
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