People shop at the Eaton Center in Toronto, Ontario, Canada on November 22, 2022.Reuters/Carlos Osorio/File photo Obtaining license rights
OTTAWA, Nov 30 (Reuters) – Canada’s economy unexpectedly contracted at an annualized rate of 1.1% in the third quarter, data showed on Thursday, avoiding recession but ahead of next week’s interest rate decision. It has been shown that growth has stalled.
The third-quarter data was below the 0.2% gross domestic product (GDP) growth expected by analysts polled by Reuters and below the Bank of Canada’s (BOC) estimate of 0.8%.
Statistics Canada said the economy was in a technical recession (a technical recession for the second consecutive quarter) as gross domestic product (GDP) data for the second quarter was revised to an increase of up to 1.4 per cent from an initially announced decline of 0.2 per cent. (defined as a negative year-on-year decline) was avoided.
“The big picture is that the economy is struggling to grow, but remains on the edge of recession,” said Doug Porter, chief economist at BMO Capital Markets. “You could almost say it’s swimming upstream.”
The Canadian dollar rose sharply against a basket of major currencies after the data was released, trading 0.2% lower at 1.3620 cents to the US dollar (73.42 US dollar cents).
The central bank has been on a wait-and-see approach since July, after raising the benchmark interest rate to 5%, the highest level in 22 years, to curb inflation. Money markets expect interest rates to be cut as early as March, and the next announcement on Wednesday will leave them unchanged.
“The bottom line is the economy is still doing well,” said Royce Mendez, head of macro strategy at Desjardins Group. “Our view is that the Bank of Canada will continue to initiate a rate cut cycle in the second quarter of 2024.”
Governor Tiff Macklem said last week that interest rates may have peaked as excess demand dissipates and low growth is expected to continue for several months.
The central bank is expected to start cutting interest rates in the second quarter of next year as inflation and the economy slow, according to a Reuters poll released early Thursday.
“When you put the central bank data together, what this means is that things are tough enough right now,” said Bipan Rai, head of North American currency strategy at CIBC Capital Markets.
According to Statscan, real GDP is likely to increase slightly by 0.2% in October, following a 0.1% increase in September.
Statscan said a decline in exports and a slowdown in inventory accumulation weighed on the economy in the third quarter, but were partially offset by increases in government spending and housing investment, with new home construction increasing for the first time since early 2022. he pointed out.
The month-on-month growth rate in gross domestic product (GDP) in September was led by manufacturing industries, exceeding analysts’ expectations of flat growth.
In its preliminary estimates for October, Statscan said gains in the mining, quarrying, oil and gas extraction, retail and construction sectors were partially offset by declines in the wholesale sector.
Reporting by Ismail Shakir and Steve Scherer in Ottawa. Additional reporting by Dale Smith in Ottawa, Divya Rajagopal in Toronto, and Fergal Smith.Editing: Mark Porter
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