Canada's third-quarter growth seen much slower than Bank of Canada forecast

TMX

10/09/2024 17:44

* 
      Economists see flat GDP growth in July to pull Q3 GDP down
    

        * 
      7-year peak joblessness, less hours worked also factors
    

        * 
      BoC optimistic with its TMX export outlook, auto
production
    

        * 
      Weak growth could force the bank to go for deeper rate
cuts
    

  
    By Promit Mukherjee
       OTTAWA, Sept 10 (Reuters) - Canadian gross domestic
product in the third quarter is likely to fall well short of the
Bank of Canada's forecast, possibly coming in at less than half
the estimate, with growth flagging and joblessness still rising,
economists said this week.
        In July, the BoC had forecast Canada's annualized GDP in
the third quarter would grow by 2.8%, led by falling borrowing
costs, growth in exports and increase in household spending.
  
     Economists' lower expectations for growth reflect
constrained consumer spending in recent weeks and the difficulty
of Canada's growing ranks of immigrants to find jobs. 
    A slide in growth projections, especially if substantial,
could force the central bank to make larger interest rate cuts
than previously envisioned to prevent the economy from slipping
into recession in the coming quarters, according to a half dozen
economists interviewed by Reuters. 
    "I think it's looking less likely that the Bank of Canada's
Q3 projections are actually going to take hold," said Andrew
DiCapua, a senior economist at Canadian Chamber of Commerce. 
    In the third quarter ending Sept. 30, Canada will probably
record gross domestic product growth of around 1% to 1.5% on an
annualized basis, DiCapua said, adding it looked more likely
that the bank would be making deeper cuts.
    A slew of disappointing economic indicators coming from
Statistics Canada on GDP and the labor force have pushed
economists to update their models. 
    Last month, Statscan said economic growth in June was flat
and is likely to be unchanged for July. The labor force survey
last week showed that unemployment hit 6.6% in August, a
seven-year peak, excluding the pandemic period. The number of
hours worked by employees in August also contracted, hitting
income levels.  
    "We have seen months and months for now that essentially the
labor market has flattened out, no growth," said Pedro Antunes,
chief economist at Conference Board of Canada, an independent
think tank.
    "That's suggesting a very weak growth for Q3," he said,
adding that bank's forecast could fall short by half or more.
    Household spending in Canada, which contributes 57% to the
GDP, slowed to 0.2% in the second quarter as higher interest
rates put a damper on consumer purchases. High mortgage costs
and rent increases have eaten into disposable incomes. 
    Population growth at a faster rate than economic expansion
also bloated unemployment numbers, with a tepid economy failing
to absorb a huge influx of immigrants. That dynamic has put
pressure on growth, with per capita GDP contracting for five
quarters in a row.
    
    DOWNSIDE RISKS
    Bank of Canada Governor Tiff Macklem conceded last week that
while the bank said it saw growth strengthening, there were some
downside risks to the expected pick-up.
    The BoC, after keeping its key policy rate for over
two-decade high of 5% for a year, trimmed it by a quarter point
three times in a row since June, bringing it down by 75 basis
points to 4.25%.
    David Doyle, head of economics at Macquarie, said the jobs
data reinforces the risks to BoC's growth outlook and the
potential for a 50 basis point rate cut in October.
    The central bank is also likely to be wrong with its outlook
on the output of the Trans Mountain Expansion (TMX) pipeline and
growth and vehicle exports, said Randall Bartlett, senior
director of Canadian economics at Desjardins.
    The bank had said in its monetary policy report from July
that export growth is expected to rise over the second half of
the year, led by TMX and motor vehicle exports which would boost
GDP. 
    "We really think the Bank of Canada was overly optimistic in
those two sectors in particular," he said.
    Desjardins is tracking a third quarter GDP of 1% against the
central bank's 2.8% forecast, Bartlett said.

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Canada GDP has stalled and jobless rate has continued to rise   
https://reut.rs/47kcolQ
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 (Reporting by Promit Mukherjee in Ottawa; Editing by Frank
McGurty and Aurora Ellis)
 ((promit.mukherjee@thomsonreuters.com;))