By Robb M. Stewart
OTTAWA--Canada's economy lost steam in the most recent quarter with a fall in business investment and exports, likely leaving room for the central bank to continue lowering interest rates to help spark growth.
Gross domestic product rose at annualized rate of 1% in the July-to-September period to 2.42 trillion Canadian dollars, the equivalent of $1.726 trillion, Statistics Canada said Friday. That marked a slowdown from the previous quarter's upwardly revised growth of 2.2% and undershot the roughly 1.5% expansion forecast by the Bank of Canada.
Preliminary data suggest momentum remained soft heading into the final quarter, with industry-level growth only ticking higher in October, the data agency said. That came after similarly muted growth in September of 0.1% on the month before, slightly weaker than the consensus view of economists for month-over-month growth of 0.2%.
Broadly, Canada's economy continues to grow at a sluggish pace after stalling the middle of last year, which continues to point toward a soft landing despite the pressures on households and businesses from still-high borrowing costs. The performance is even more lackluster in light of rapid immigration-driven population growth this year, with GDP per person contracting for a sixth consecutive quarter.
The Bank of Canada is open to further interest-rate cuts so long as the economy evolves largely as anticipated. Policymakers have said they want to see growth pick up to avoid interest rates from getting stuck below target.
The advance in third-quarter GDP--a broad measure of goods and services produced across the country--was buoyed by household spending and a rise in purchases of new trucks, vans and sport utility vehicles, as well increased spending on financial services.
Per-capita household spending edged up for the quarter, after falling in six of the last eight quarters.
A further increase in government spending also added to the quarter's growth, with spending across all levels of government up.
Still, while businesses continued to add to nonfarm inventories, the pace of growth slowed from the quarter before with reduced stocks of motor vehicles by dealers and a drawdown in manufacturing goods.
Business expenditure for the quarter was down, with lower spending on machinery and equipment. Spending on aircraft and other transportation equipment and parts was notably lower, coinciding with a decline in imports of aircraft and ships following a jump in the second quarter.
Exports of goods and services from Canada were down 0.3%, a softer drag on growth than the 1.4% drop the quarter before but still outpacing the 0.1% drop in third-quarter imports. Lower exports of unwrought gold, passenger cars and light trucks weighed in the quarter, countering an increase in crude oil shipments.
The GDP report is one of the last major indicators to be released before the Bank of Canada's Dec. 11 policy decision. The bank has cut its benchmark rate at each of its last four meetings, including a larger-than-usual half percentage point move in October as consumer price inflation has decelerated. Inflation for the last three months has been at or below the 2% target.
The economy is widely expected to gain momentum through the final quarter and into next year as consumers and businesses respond to the fall in borrowing costs and confidence recovers. The Bank of Canada expects GDP will gradually strengthen in 2025 and 2026 despite government measures to cut back on immigration that has the population on track to grow about 2.5% in the second half of this year. Still, economists are wary of possible headwinds as U.S. President-elect Donald Trump prepares for his return to the White House and threatens tariffs against countries including Canada.
Final domestic demand, a gauge of spending by all sectors of the economy, rose 2.4% annualized in the latest quarter, a modest pickup from a 2.3% rise the previous quarter.
Wage growth in areas including finance and education helped drive a rise in employee compensation for the quarter, and household savings increased as disposable income grew at double the rate of spending.
Still, the country's terms of trade, the net income pocketed from the sale of exports, fell for a fourth consecutive quarter.
Statistics Canada's early estimate of industry-level accounts suggests GDP in October increased 0.1%. That was based on increases in real estate, transportation and warehousing and retail trade, which was partially offset by declines in construction, mining and oil and gas extraction.
In September, GDP edged up 0.1% from the month before thanks to retail and wholesale trade. That marked a fourth month running where services-producing industries expanded, while goods producers were down for a second month in a row with further weakness in mining and energy and in manufacturing.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
11-29-24 0922ET
