Fundamental Analysis

Growth in Canada Slowed in Q3 - But to a Still 'Above-Potential' Rate



  • Canadian Q3 GDP rose 1.7% - broadly in line with market expectations for a 1.6% gain.
  • Household spending was stronger-than-expected and business investment rose for a third straight quarter
  • GDP rose 0.2% in September, marking somewhat stronger-than-expected momentum at the end of Q3.
  • We continue to expect GDP growth has moderated from the outsized pace from mid-2016 to mid-2017 but to a still 'above-potential' 2% rate on balance.

Our Take:

The 1.7% (annualized) gain in GDP was down from the (unsustainably strong) 3.6% average increase over the prior four quarters. The increase was still modestly above most estimates of the economy's long-run 'potential' growth rate, though. Indeed, the slower GDP growth didn't prevent the unemployment rate from falling again in the third quarter - with the separately released November employment report this morning pointing to further labour market improvement to-date in Q4. GDP growth in Q3 continued to be concentrated in household spending with a stronger-than-expected 4.0% increase that built onto a 5.0% surge in Q2. Government investment spending also jumped higher, though, and business investment rose for a third straight quarter - albeit at a more modest pace than over the first half of the year. Offset came from a large, but expected, pullback in net trade.

Monthly GDP data, also released this morning, were perhaps more encouraging than the quarterly data in terms of near-term growth implications. September GDP rose a stronger-than-expected 0.2% (non-annualized) to more-than-retrace a 0.1% dip in August. That left somewhat stronger momentum at the end of the quarter than we previously assumed. The data is still pointing to a slowing in underlying GDP growth from the outsized pace from mid-2016 to mid-2017 but is also still fully consistent with our - and the Bank of Canada's - view that growth will be sustained at a modestly above trend 2% pace going forward.

Author: RBC Financial GroupWebsite:
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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