Statistics Canada reported this morning that real GDP rose at an annualized pace of 1.3 percent in Q3, down from a pace of 3.5 percent in Q2. The growth rate was in line with analysts' expectations, and it is worth noting that the strong growth rate seen in Q2 marked the only time in the past year that the economy has grown at a pace above 1.5 percent. For all the surprising strength shown by the labour market for much of this year, the economy is for the most part just edging ahead.
There were positives to be taken from today's report, mainly relating to investment spending. Housing investment grew at an annualized rate of 3.2 percent, the fastest pace since 2012, with a healthy gain in new housing construction. Business investment rose at a 2.6 percent pace, with all sub-categories posting gains. This is somewhat surprising, given the continuing uncertainty over trade and the global growth outlook, and only time will tell if this sort of performance can be maintained. Household spending advanced at a 0.4 percent pace in the quarter after being virtually unchanged in Q2, while inventory accumulation and -- ominously -- exports subtracted from the overall pace of growth.
It seems likely that growth for the current quarter will be similarly subdued. Despite regular reports of an imminent deal, trade tensions remain unresolved. Moreover, the recent week-long rail strike at CN Rail will weigh on growth. Normally the impact of labour disputes and such is quickly reversed once the strike is over. In this case, however, the interruption of oil shipments to US refineries can probably not be made up, as the system is basically running at full capacity. This suggests that export volumes will again be a drag on overall growth in the current quarter.
Today's numbers are largely in line with the Bank of Canada's most recent forecasts, which do not see the economy moving onto a faster growth path until some time in 2020. The Bank's next rate decision is just days away, scheduled for December 4. Today's data do not change the likelihood that the Bank will keep rates unchanged this time, with a rate cut looking more likely for some time in the first quarter of next year, particularly if global trade tensions persist.
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