Canada's Economy Expands by Just 1%, Chances of Big Rate Cut

• Canada's economy grew at an annualised rate of just 1% in the third quarter, in line with market expectations but less than the 1.5% forecast by the Bank of Canada, prompting currency markets to boost bets for a large rate cut next month.
• The increase in GDP came from an unlikely growth in consumer spending and persistent government expenditure but it failed to offset declines seen in business investments.
• The BoC has reduced borrowing costs by 125 basis points since June to 3.75% as the annual inflation rate fell back toward its 2% target and the bank grew more concerned about a hobbling economy. The GDP data, as well as an employment report due early next month, will help the Bank of Canada determine the size of an expected rate cut at its last monetary policy decision of the year on Dec. 11.
• Currency markets boosted their bets for a 50bps reduction in interest rates next month to around 44% from 31% before the data were released.
• Economic growth came below expectations at 0.1%, Statscan said, and a preliminary estimate showed growth was likely to be 0.1% in October. Analysts had predicted month-on-month GDP growth in September at 0.3%. The fourth-quarter number indicates a slower start to the final quarter of the year, which could force the bank to revise its fourth-quarter growth target it projected in October.
• Economists noted that growth prospects do not seem inspiring in Q4 2024 or the start of next year as a looming threat from the proposed 25% unilateral tariffs by U.S. President-elect Donald Trump and immigration curbs will gnaw at the GDP pie.

(Source: Reuters)