Weak Q3 GDP growth may prompt Bank of Canada rate cuts
Canada's recent GDP data suggests the economy is going to be worse than what the Bank of Canada expects. Statistics Canada’s flash estimate shows a 0.3% GDP increase in September and no growth in August, indicating a 1% annualized growth rate for Q3, below the Bank's 1.5% forecast.
“We expect economic conditions will continue to look soft in the near term,” Claire Fan, an economist at Royal Bank of Canada, said in a note. “Rate cuts from the Bank of Canada impact the economy with a lag and the level of interest rates is still high.”
However, Royce Mendes of Desjardins said that the GDP report hints at an economic rebound percolating in the Canadian economy given the gains in August in the insurance, financial services, and “interest rate sensitive” retail sectors. Mendes suggests a 25-basis-point rate cut in December, while markets anticipate a more aggressive 50-basis-point reduction.
On the other hand, Capital Economics' Thomas Ryan argues the revised GDP figures and recent immigration policy shift could prompt the Bank of Canada to lower rates faster than expected.
Analysts remain cautious about predicting the Bank's next move because of additional data on jobs and GDP expected in November. However, experts have suggested rate cuts between 25 and 50 basis points for December.
