Statistics Canada's offices at Tunny's Pasture in Ottawa are shown on Friday, March 8, 2019. (THE CANADIAN PRESS/Justin Tang)
The Canadian economy continued to shrink on a per-person basis for the sixth quarter in a row, as rising interest rates weighed heavily on business investments.
According to Statistics Canada, the economy grew at an annualized rate of 1% in the third quarter, a slowdown from the 2.2% growth seen in the second quarter. While this figure met economists' predictions, it fell short of the Bank of Canada's October forecast of 1.5%.
On a per-capita basis, real GDP declined by 0.4% in the third quarter, highlighting ongoing economic challenges.
Economists remain divided on the Bank of Canada's next move regarding interest rates. Some, like TD's director of economics James Orlando, suggest the current economic momentum might push the central bank to opt for a smaller rate cut. Others, including CIBC senior economist Andrew Grantham, argue that weaker growth justifies a larger reduction. Grantham added that upcoming employment data will likely influence the Bank’s decision.
Currently, the Bank of Canada’s key interest rate stands at 3.75%, following a half-percentage point cut in October. Governor Tiff Macklem has indicated that future rate decisions will depend on economic data, including inflation and employment trends.
Friday’s GDP report revealed mixed signals for the economy. While higher household and government spending supported growth, slower inventory buildup, reduced business investments, and weaker exports offset these gains. Real GDP edged up by just 0.1% in September, and early estimates point to a similar sluggish pace in October.
Despite the slow growth, household savings surged in the third quarter, with the savings rate hitting 7.1%—the highest level in three years. This increase was driven by rising wages and lower interest rates, which allowed disposable income to grow faster than spending. For context, the savings rate was below 3% at the end of 2019.
Inflation remains a key factor in the central bank's decisions. Canada’s annual inflation rate rose to 2% in October, up from 1.6% in September, aligning with the Bank of Canada's target but leaving room for caution in monetary policy adjustments.
