By Robb M. Stewart


OTTAWA--Canada's economy continued to grow in the three months through September, as exports and businesses investment in inventories countered weakness in housing investment and household spending amid high inflation and rising interest rates.

The stronger-than-expected quarter adds weight to expectations rate are likely to be increased further, and may now peak at a higher level.

Gross domestic product, a broad measure of goods and services produced in the economy, rose 2.9% at an annual rate in the third quarter to 2.19 trillion Canadian dollars, the equivalent of $1.62 trillion, Statistics Canada said Tuesday.

The rise topped market expectations for growth of 1.5% for the latest quarter, according to economists at TD Securities, though it was slower than the 3.2% advance in the second quarter of the year, which was revised down slightly from an earlier reading of 3.3%.

Canada's GDP has now advanced for five consecutive quarters, boosted in the latest three-month period by exports of crude oil and bitumen, with volumes up sharply with a drop in prices, and an increase in farm and fishing products with higher wheat yields for the period. The third quarter also marked a second straight quarter of large inventory accumulation, with a record high quarter-over-quarter addition to non-farm inventories, Statistics Canada said.

Canada's finance minister, Chrystia Freeland, has warned of difficult days ahead for the economy and many economists predict Canada could dip into a recession in 2023 in the wake of a string of interest rate increases this year. The Bank of Canada has forecast that Canada's economic growth will stall through the end of this year and the first of half of next year, and bank Gov. Tiff Macklem has said further rate increases are likely necessary even as higher rates have already cooled some areas of the economy, such as the housing market.

Other major developed countries have reported economic slowdowns in recent months. The U.S., Canada's biggest export market by far, grew its economy in the third quarter but showed signs of a broad slowdown as consumer and business spending faltered, with GDP growing at a 2.6% annual rate after declining in the first half of 2022.

Statistics Canada said early monthly GDP data suggest the economy flattened in October. That comes after recent largely upbeat advance estimates for October retail and manufacturing sales from the Statistics Canada.

While Canada's economy continued to grow in the third quarter, the agency said final domestic demand, a gauge of spending by all sectors of the economy, edged down 0.6% at an annualized rate. That was the first decline in five quarters, after it rose 2.4% in the second quarter.

Third-quarter saw the lowest growth in employee wages and salaries since the second quarter of 2020, when compensation fell sharply, Statistics Canada said. The household savings rate edged higher for the quarter as disposable income increased slightly and spending slowed.

The Bank of Canada's last policy-rate decision of the year is set for Dec. 7. The bank has lifted its key rate six times in a row this year, by a cumulative 3.5 percentage points to bring it to 3.75%.

Along with the Federal Reserve, the Bank of Canada has been one of the most aggressive central banks in raising rates to tame inflation. The country's annual inflation rate held steady at 6.9% in October, well above the central bank's 2% target, while unemployment also was unchanged for the month at 5.2% as the number of private-sector employees rose for the first time since March.

Gov. Macklem has in recent weeks said the bank is looking to balance the risk of delivering too many rate increases against that of delivering too few for fears of triggering a severe recession. In its latest monetary policy report released last month, the Bank of Canada scaled back its forecasts for GDP growth by about one-quarter percentage point to roughly 3.3% this year and by close to 1 percentage point for 2023 to 0.9%.

Statistics Canada also released GDP data for September showing industry-level growth of 0.1% from the month before, in line with market expectations and after economic activity notched a 0.3% advance in August, revised up slightly from 0.1% growth previously reported. In September, the economy was driven by goods-producing industries, thanks to crude bitumen production in the western province of Alberta and continued momentum in agricultural output, while retail activity edged lower and manufacturing continued to weaken.

Early data indicates GDP was essentially unchanged in October from the month before, though the figure will be updated when the official data is released, the agency said. For October, it said strength in the public, transportation and warehousing, construction and wholesale trade sectors were offset by decreases in the manufacturing and mining, quarrying and oil and gas extraction sectors.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

11-29-22 0911ET