Canada Economy Slowed in Third Quarter - Wall Street Journal

Canada Economy Slowed in Third Quarter - Wall Street Journal

The Bank of Canada, headed by Stephen Poloz, has said the domestic economy has shown signs of resilience in recent months. Photo: David Kawai/Bloomberg News

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Paul Vieira

Paul Vieira
The Wall Street Journal
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Nov. 29, 2019 9:11 am ET

OTTAWA—Economic growth in Canada decelerated markedly in the third quarter after posting the fastest expansion among Group of Seven countries in the previous three-month period, slowed down by a decline in exports and a drawdown of inventories.

Offsetting those factors in the quarter were a pickup in business investment and a slight improvement in household spending.

Canada’s gross domestic product, or the broadest measure of goods and services produced in an economy, increased at a 1.3% annualized rate in the third quarter, to 2.099 trillion Canadian dollars ($1.580 trillion), Statistics Canada said Friday. That fell just short of market expectations for a 1.4% advance, according to economists at BMO Capital Markets, but was spot on with the Bank of Canada’s most recent quarterly economic forecast. Canada’s GDP expanded by a revised 3.5% in the second quarter.

In comparison, the U.S. economy grew 1.9% in the third quarter.

Economic forecasters, including at the Bank of Canada, are anticipating subpar growth of below 2% in Canada for this year and the next two. Canada’s economy is facing stiff headwinds, fueled by global trade uncertainty, lower commodity prices, and financially strapped households are carrying elevated levels of debt.

The Bank of Canada, however, has signaled the economy remains in decent shape and monetary-policy conditions are accommodative. The prevailing wisdom among market watchers is the central bank will keep its main interest rate unchanged at 1.75% at its policy announcement on Wednesday.

“We think we’ve got monetary conditions about right given the situation,” Bank of Canada Governor Stephen Poloz said last week. Annual inflation continues to rise close to 2%, which is also the central bank’s target.

“Economic activity in Canada is expanding at a pace consistent with 2% inflation, but ... a number of potential developments at home and abroad might jeopardize that performance,” the monetary-policy council at the C.D. Howe Institute, a Toronto think tank, said this week.

Canada’s third-quarter report said business investment rose at a nonannualized pace of 2.6%, or the biggest increase since late 2017, compared to a slight decline in the previous quarter. Household spending rose 0.4%, after edging up 0.1% in the April-to-June period.

The data agency said investment in housing climbed 3.2%, or the fastest pace in over seven years, driven by new-home construction. Economists who argue the Bank of Canada should stand pat warn further rate cuts could encourage more borrowing, and potentially fuel another round of overheated real-estate markets that hit the cities of Toronto and Vancouver, British Columbia.

The biggest contributor weighing on growth was inventories. The level of business inventories fell to C$2.66 billion in the third quarter from C$12.47 billion in the previous quarter, or the biggest drawdown since late 2017. Before the third quarter, firms had built up inventories for an extended period, the data agency said. A decision by firms to not replenish stockpiles counts against growth, according to the way GDP is calculated.

Another negative contributor was trade. Export volumes fell 0.4% in the third quarter, after a blockbuster 3.1% advance in the prior quarter. Import volumes were flat.

Meanwhile, the monthly GDP report covering September reported a 0.1% increase, with 13 out of 20 sectors tracked posting gains. The monthly GDP report covers output from the goods-producing and services sector, and doesn’t incorporate income and investment as the quarterly release does.

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2019-11-29 14:11:00Z
https://www.wsj.com/articles/canada-economy-slowed-in-third-quarter-11575036688
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