Canadian economy edges up in November despite sectoral shifts, raising concerns amidst high interest rates and growth challenges. (BNN Bloomberg)
The Canadian economy appears to be steering clear of consecutive quarterly downturns, showing a slight uptick toward the year's end, signaling the potential for a gentle slowdown. Early indicators propose a 0.1 per cent expansion in gross domestic product (GDP) for November, marked by gains in manufacturing and agriculture. However, this progress was counterbalanced by a reduction in retail trade, according to Statistics Canada's report released in Ottawa.
This growth follows a stagnant reading in the previous month, falling short of the anticipated 0.2 per cent increase according to a Bloomberg survey of economists. October marked the third successive month where economic output remained essentially unchanged.
Presently, the economy is on a trajectory for a fourth-quarter annualized expansion of 0.5 per cent, assuming December records no significant growth. This figure surpasses the 0.2 per cent consensus forecast in a Bloomberg survey but falls short of the Bank of Canada's projection of 0.8 per cent. Notably, the economy unexpectedly contracted by 1.1 per cent in the third quarter.
The yield on two-year Canadian government bonds experienced a brief rise of around two basis points post the report's release before later dropping to 3.935 per cent at 9:05 a.m. Ottawa time. Concurrently, the Canadian dollar experienced a slight decrease of about 0.06 per cent to $1.326 per U.S. dollar.
While the November rebound suggests a potential escape from consecutive quarterly declines, the data indicate a slowing growth momentum due to the impact of high interest rates on both businesses and households. The deceleration could prompt the Bank of Canada to maintain borrowing costs at 5 per cent as it awaits softer demand to alleviate price surges.
Benjamin Reitzes, rates, and macro strategist at Bank of Montreal, highlighted, "The economy is clearly struggling and is unlikely to shift gears as we enter 2024. If November fails to generate growth, concerns about a recession may heighten."
This latest data is crucial ahead of the Bank of Canada's upcoming rate decision on Jan. 24. A majority of forecasters in a Bloomberg survey anticipate the central bank to maintain the overnight rate at 5 per cent for the fourth consecutive meeting. However, market and economic analysts foresee a possibility of the central bank easing monetary policy by mid-2024.
Governor Tiff Macklem emphasized that excess demand has dissipated and anticipates continued weakness in the economy for the upcoming quarters. Nonetheless, he remains cautious about considering rate cuts, asserting the necessity for clear evidence indicating a consistent path toward the 2 per cent inflation target before contemplating any easing measures.
Last month's inflation rate remained unexpectedly stagnant at 3.1 per cent from a year ago, giving policymakers no immediate cause to discuss rate cuts or imminent reductions. Macklem and his team are banking on a weakened economy to alleviate the pace of price increases in the forthcoming months.
Royce Mendes, head of macro strategy at Desjardins Securities, anticipates a sluggish economic trend in the fourth quarter and predicts the likelihood of a mild recession in Canada as higher interest rates impact households and businesses in 2024.
Examining specific sectors, manufacturing contracted by 0.6 per cent in October for the fourth time in five months, while wholesale trade decreased by 0.7 per cent, marking a second consecutive monthly decline. Real estate activities dipped by 6.8 per cent, extending a four-month downward trend, indicating a cooling trend in major housing markets across Canada.
The transportation and warehousing sector faced a 0.2 per cent decline due to the impact of the St. Lawrence Seaway strike in Ontario and Quebec. However, mining, quarrying, oil, and gas extraction saw a 1 per cent increase, and retail trade displayed a growth of 1.2 per cent, although preliminary data for November suggests this upturn might be short-lived.
In supplementary reports, Statistics Canada indicated that wholesale sales escalated by 0.8 per cent, and factory sales expanded by 1.2 per cent in November. The surge in wholesale trade was driven by increased sales in the motor vehicle, building material, chemical product, transportation equipment, and primary metal subsectors.
