Canada’s growth may slow down rate hikes after strong Q3

The central bank may be able to slow down its interest rate increases after stronger than expected growth in the third quarter, but Canada's economy is gearing down rapidly after stronger than expected growth in the third quarter.

The preliminary data shows gross domestic product was flat in October, according to Statistics Canada in Ottawa. In September, that followed a 0.1% gain, in line with the median estimate in a Bloomberg survey of economists.

The loonie fell to C $1.3547 per US dollar as of 8: 44 a.m. Ottawa time, extending earlier losses. Benchmark government yields were not changed.

The growth of third quarter was down to 2.9% in September from a revised pace of 3.2% in the second quarter.

The expansion was supported by government consumption.

The report highlighted the slowing momentum in domestic demand, with household consumption falling 1%, its first decline since the second quarter of 2021, and business investment fell 5.1%, the second straight quarterly decline.

The Bank of Canada may start winding down its rate hiking cycle due to the slowdown in momentum, and the data could potentially signal the beginning of the soft landing that Governor Tiff Macklem and his officials are trying to engineer.

Employees compensation rose by 1.2% in the third quarter, the weakest growth since the second quarter of 2020, when it declined sharply due to Covid 19 lockdowns.

Economists were expecting third-quarter growth of 1.5% annualized, followed by 0.5% in the final three months of the year. There are two quarters of contraction in the first half of 2023.

The Bank of Canada has already started slowing down its rate hikes after increasing the benchmark overnight lending rate to 3.75% from the emergency pandemic low of 0.25% that held until March.

Before Tuesday s report, a 25 basis-point hike was fully priced in for the Bank of Canada's Dec. 7 decision, with traders putting a one-third chance on a 50 basis-point move.

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