Highlights:
- Canadian Q3 GDP rose 1.7% – broadly in line with market expectations for a 1.6% gain.
- Household spending was stronger-than-expected and business investment rose for a third straight quarter
- GDP rose 0.2% in September, marking somewhat stronger-than-expected momentum at the end of Q3.
- We continue to expect GDP growth has moderated from the outsized pace from mid-2016 to mid-2017 but to a still ‘above-potential’ 2% rate on balance.
Our Take:
The 1.7% (annualized) gain in GDP was down from the (unsustainably strong) 3.6% average increase over the prior four quarters. The increase was still modestly above most estimates of the economy’s long-run ‘potential’ growth rate, though. Indeed, the slower GDP growth didn’t prevent the unemployment rate from falling again in the third quarter – with the separately released November employment report this morning pointing to further labour market improvement to-date in Q4. GDP growth in Q3 continued to be concentrated in household spending with a stronger-than-expected 4.0% increase that built onto a 5.0% surge in Q2. Government investment spending also jumped higher, though, and business investment rose for a third straight quarter – albeit at a more modest pace than over the first half of the year. Offset came from a large, but expected, pullback in net trade.
Monthly GDP data, also released this morning, were perhaps more encouraging than the quarterly data in terms of near-term growth implications. September GDP rose a stronger-than-expected 0.2% (non-annualized) to more-than-retrace a 0.1% dip in August. That left somewhat stronger momentum at the end of the quarter than we previously assumed. The data is still pointing to a slowing in underlying GDP growth from the outsized pace from mid-2016 to mid-2017 but is also still fully consistent with our – and the Bank of Canada’s – view that growth will be sustained at a modestly above trend 2% pace going forward.
