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Highlights
- Canada’s economy grew 1% annually in Q3, with a modest 0.1% GDP expansion in September.
- Per capita GDP fell 0.4%, marking the sixth consecutive quarterly decline, signaling ongoing economic strain.
- Rising household savings and mixed sectoral performance add complexity to growth forecasts.
Canada's economy grew at an annualized rate of 1% in the third quarter of 2023, according to data released by Statistics Canada. While this aligns with economist expectations, the monthly GDP growth of 0.1% in September fell short of the 0.3% forecast. The weak start to the fourth quarter and subdued September growth have fueled speculation about the likelihood of a 50-basis-point rate cut by the Bank of Canada in December.
Sectoral Performance and Revised Data
The modest third-quarter growth was primarily driven by increased household and government spending, which offset declines in other areas, such as business investment and exports. Gains in October are projected to stem from sectors like real estate, transportation, and retail trade, while construction and mining showed declines.
Statistics Canada also revised GDP figures for the past three years significantly higher, suggesting stronger historical growth than previously reported. However, BMO Capital Markets chief economist Douglas Porter emphasized that the economy faced notable challenges through mid-summer and early fall, despite signs of a revival in domestic demand.
Economic Challenges and Per Capita Declines
A critical concern lies in per capita GDP, which dropped by 0.4% during the quarter. This marks the sixth straight quarterly decline, highlighting continued economic strain on a population-adjusted basis.
Household savings rose sharply to a three-year high of 7.1%, as disposable income outpaced spending growth. This suggests consumers are cautious about economic uncertainty, possibly restricting future spending-driven growth.
Bank of Canada and Policy Implications
With economic growth trailing the Bank of Canada’s revised Q3 forecast and a tepid start to Q4, analysts are adjusting their rate cut expectations. The central bank had predicted a 2% growth rate for Q4, but sluggish economic activity suggests that goal may not be met.
CIBC economist Andrew Grantham noted that the weaker-than-expected Q3 conclusion implies a slower-than-hoped recovery in Q4. Similarly, Desjardins managing director Royce Mendes pointed to the possibility of a 25-basis-point cut in December, with room for a larger, “jumbo-sized” adjustment depending on evolving conditions.
