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GDP Data Support Steady Rate Policy at BOC

Don Curren November 29, 2019

Canada’s economy churned out GDP growth of 1.3% in the third quarter as business investment rose substantially and consumers kept spending, but exports dipped, a result that was in accord with expectations and will not disturb expectations the Bank of Canada will hold interest rates steady at its policy statement next Wednesday.

As a result, the data had a negligible impact on the Canadian dollar. Overall, currency market trading was subdued in light of the Thanksgiving holiday period in the US.

Statistics Canada reported Friday morning that real gross domestic product (GDP) grew 0.3%, following a 0.9% increase in the second quarter for an annualized rate if 1.3%, exactly as expected by economists.

StatsCan said business investment rose 2.6% in the third quarter, the fastest pace since the fourth quarter of 2017.

Business investment in non-residential buildings was up 1.4% and growth in investment in engineering structures accelerated to 3.1%, the fastest pace since the third quarter of 2016.

Business investment in machinery and equipment rose 1.7%, after falling 6.0% in the second quarter, while investment in intellectual property products remained relatively subdued at 1.5%, matching the previous pace of growth.

StatsCan said growth in household spending accelerated to 0.4%, after rising 0.1% in the second quarter. These increases were moderated by a 0.4% decline in exports, while imports were flat.

The details on housing investment were consistent with the view Canada’s housing market is regaining momentum. Investment in the sector rose 3.2%, the fastest pace since the first quarter of 2012.

The encouraging jump in business investment was an essential factor in helping Canada achieve even muted growth in the third quarter as exports slumped.

StatsCan said export volumes declined 0.4%, after rising 3.1% in the second quarter. Notable downturns occurred in exports of non-metallic minerals (-15.2%) and farm and fishing products (-4.5%).

Import volumes remained flat in the third quarter, following a 0.9% drop in the second quarter, it said.

On a monthly basis, real GDP edged up 0.1% in September, with the increase in services (+0.2%) slightly outpacing the increase in goods (+0.1), StatsCan reported.

The Bank of Canada is expected to hold its policy rate steady at 1.75% at its last policy announcement of the year on December 4.

The 1.3% growth in the third quarter was consistent with the Bank’s forecasts, and the details of the report also aligned with its understanding of the economy. The Bank takes the view that, although it’s menaced by the tensions over trade and other geopolitical risks, the Canadian economy remains relatively robust on the ground.

If anything, today’s data are likely to reinforce expectations the Bank will stay on hold for a considerable period.

Don Curren 
Market Strategist and Content Editor

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