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Data released today, showed that the Canadian economy expanded at an annualized 2% during the third quarter. According to National Bank of Canada analyst, Krishen Rangasamy, the surprise was the atypical weakness in domestic demand.

Key Quotes:

“Canada’s real GDP expanded at an annualized pace of 2% in Q3, as contributions from trade more than offset a small drag from domestic demand.”

“The Canadian economy decelerated in Q3 after unsustainable gains the prior quarter. The surprise, however, was the atypical weakness in domestic demand, particularly for business investment. Uncertainties related to the trade situation with the U.S. (recall the USMCA was only agreed on the last day of September) likely weighed on investment. While consumption grew in Q3, that came at the expense of the savings rate which plunged near all-time lows as Canadians dipped into their nest eggs to compensate for weak real disposable incomes.”

“Don’t expect a stellar Q4. True, solid corporate profits could help business investment bounce back, more so after the USMCA trade deal, while restocking could also assist growth. But a bad handoff from September ─ GDP fell 0.1% (unannualized) in that month ─ warrants caution.”

“While the Q3 GDP growth print came in slightly better than the Bank of Canada’s estimate of 1.8%, that’s unlikely to hasten the central bank into tightening monetary policy considering challenges ahead.”