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.
