Canada’s economic expansion slows to 1.6% as recession looms

(Bloomberg) — Canada’s economic growth rate halved in the third quarter, ahead of what is expected to be even steeper later this year.

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Preliminary industry-based data shows gross domestic product rose 0.1% in September, Statistics Canada reported Friday in Ottawa. This follows an unexpected gain of 0.1% in August, against a stable reading expected by economists for this month.

Overall, the pace of monthly gains was sufficient to produce annualized growth of 1.6% in the third quarter, according to an initial estimate from the statistics agency. Although almost certainly revised, it is down sharply from a pace of 3.3% in the second quarter and 3.1% in the first three months of the year.

The Canadian currency was little changed after the report, falling 0.3% to C$1.361 per US dollar at 10:05 a.m. Toronto.

The figures show that inflation and rising interest rates did not completely derail economic activity over the summer, with retail sales posting a rebound in August. But the economy is clearly slowing down.

Economists forecast even slower growth in the fourth quarter, a key reason the Bank of Canada slowed its pace of interest rate hikes this week, warning of a slowdown ahead.

On Wednesday, the central bank expects growth to slow to 0% to 0.5% later this year and in the first half of 2023, with risks of a technical recession. He had predicted third-quarter growth to be 1.5% annualized.

Based on Bloomberg surveys, economists forecast growth of 1% at an annualized rate in the third quarter.

“The key finding is that the economy maintained slightly better momentum in the fall than expected, in part due to a strong grain harvest,” Douglas Porter, chief economist at Bank of Montreal, said in a report. to investors. “Nevertheless, we continue to expect economic momentum to slow closer to zero as we head into the fourth quarter.”

There are actually three separate gauges of quarterly GDP: revenue, spending and production by industry – the latter coming on Friday. The most-watched metric is the spending-based figure that will be released on November 29.

Governor Tiff Macklem has already raised the Bank of Canada’s policy rate by 3.5 percentage points since March, one of the strongest tightening cycles in the central bank’s history. This week, he signaled that policymakers are “closer” to the end of this tightening phase.

The latest GDP numbers “should be no change for monetary policymakers who appeared more dovish than expected on Wednesday,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a statement to investors. He added that the focus will now be on the October jobs data due next Friday.

(Updates with market and economist reaction.)

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