With GDP growing at a slower pace than BoC estimate, it could be a close call
The latest Canadian GDP data did little to provide certainty for where the Bank of Canada may decide to head with its final interest rate decision of 2024.
There are just nine days until Governor Tiff Macklem and his team have to make a call on whether a cut is appropriate to the current (and near-term) state of the Canadian economy, and if so, whether that should be a jumbo 50 basis point cut as in October, or a more cautious 25-point cut.
Looking at the analysis of the 1% rise in GDP for the third quarter of 2024, in line with broad expectations but below the BoC’s 1.5% forecast and alongside a weaker reading of GDP per capita, what do economists at Canada’s major banks think will be the central bank’s move?
As with some other recent rate decisions, there is not a consensus with some going large and others expecting a more modest cut.
“The GDP numbers should help to reinforce that interest rates are higher than they need to be to maintain inflation sustainably at a 2% rate,” said RBC’s Nathan Janzen. “The BoC will also be watching next week’s labour market data closely, but our own base-case assumption is for another 50 basis point cut to the overnight rate in December.”
Andrew Grantham at CIBC is also holding open the potential of a jumbo rate cut on December 11, but is less certain, despite expectation that the BoC will have to cut its GDP forecast and a still-widening output gap.
“[The GDP] data are somewhat supportive of a 50bps cut at the December meeting, although next week's employment data will be key in the final decision,” he said.
TD Economics’ Andrew Foran noted mixed messages in the GDP stats (see the WP website for more details on the numbers).
“On the one hand, overall GDP growth was modest, and soft monthly showings in September and October will make the BoC’s call for a Q4 growth acceleration to 2% more difficult to achieve,” he said. “On the other hand, domestic demand was solid, fueled by healthy gains in both goods and services consumption. Given this, a 25bps cut (versus a larger 50bps move) seems the more likely outcome.”
Meanwhile, Scotiabank’s Derek Holt says that there is underlying strength in the Canadian economy that should make the BoC opt for a 25bps cut: “Nothing here screams out that the BoC should be contemplating a 50bps move in December.”
