OTTAWA: Canada’s growth in Q3 was slightly stronger than the 3.4% expected going into the report and more than retraces the Q2 decline of 1.3% (revised from a previously-estimated –1.6%) as noted by the Paul Ferley, Assistant Chief Economist at RBC Economics.
“September GDP was up a solid 0.3% that was much stronger than market expectations of 0.1% gain and bodes well for above-average growth continuing in Q4 though down from Q3’s outsized increase.”
“The third quarter saw consumer spending encouragingly up a stronger-than-expected 2.6% following a 1.8% increase in Q2. However, it was offset by business investment rising a smaller-than-anticipated 3.5%. The structures component was up an impressive 15.7%, but largely reflecting the arrival of a large ’structure’ destined for the Hebron oil fields that was previously flagged as a large import component in the September trade report.
Offset came from sizeable declines in M&E (12.2%) and intellectual property (17.0%). As well, government spending unexpectedly declined 1.2%. Exports rose a solid 8.9% with net exports adding an expected 1.5 ppts.
This only partially reversed the 5.4 ppts subtraction in Q2 although Q3 imports were boosted the import of the same structure that provided a lift to nonresidential structures investment. Inventories were an unexpected add contributing 1.0 ppts to Q3 growth following a 2.2 ppts add in Q2. This followed four quarter of inventories subtracting from quarterly GDP growth.”
The sharp jump in Q3 GDP growth, though impressive on its own, needs to be read in conjunction with the Q2 data as it provides an offset to the 1.3% decline that resulted from the temporary curtailment of oil sands output in May as wildfires threatened production facilities.
The issue going forward is what growth rate will the economy stabilize at once the temporary boost from the recovery of this lost oil production passes. The Bank of Canada’s October forecast indicated Q4 growth moderating to 1.5% before rising to 2.0% on average through 2017. This reflects the expectation of growth being sustained at an above-average rate through next year. To the extent that this is confirmed in the data, with the September GDP numbers implying some upside risk to the Q4 outlook, the central bank is expected to hold the overnight rate unchanged at the current 0.50% through next year.”
