Canada’s economy grew at the slowest annual pace since the recession began says today’s report on gross domestic product from Statistics Canada. The country’s economic recovery is slowing rapidly now due to softer trade and the pullback in the housing market.
The Stats Canada report said economic growth slowed to an annual pace of just 1 per cent in the third quarter of the year. That’s down sharply from 2.3 per cent in the second quarter and also well below the 2.5-per-cent pace in United States.
“In a nutshell, this result is a clear disappointment, especially after the surprisingly perky growth rates seen earlier this year,” said BMO Nesbitt Burns deputy chief economist Douglas Porter in an article in the Globe and Mail.
Here’s an excerpt:
“In hindsight, it looks like the economy borrowed all the growth from the second half of the year and put it in the first few months of 2010. Bottom line for the Bank of Canada – there’s zero rush to raise rates again.”
The GDP numbers sent the currency down against the greenback, on the expectation that Mr. Carney may need to keep his benchmark interest rate at 1 per cent well into 2011, and come exactly one week before his next policy decision on Dec. 7. Mr. Carney has stressed that the domestic economy has “underlying momentum” and that in terms of the absolute level of activity, the Canadian recovery is far ahead of the rebound in the United States. Nonetheless, he also has emphasized that weak US demand and uncertainties throughout the global economy mean a return to rate hikes would need to be “carefully” considered.
Benjamin Tal, Senior Economist at CIBC World Markets concurred in his address at the Canadian Association of Accredited Mortgage Professionals ( CAAMP) conference, last week. His opinion is that Canada will most likely choose not to jump the gun with rate increases and will wait for the US to raise their rates first.
Tal predicts that we will not see an increase in mortgage rates until the third quarter of 2011 and then only moderate increases through out 2012.
There was some positive news in today’s GDP report. Consumer spending, so key to Canada’s economic recovery, continues to be relatively strong, the agency noted, gaining 0.9 per cent in the third quarter.
“This was the third quarterly increase in 2010, and the first time that quarterly growth exceeded 4 per cent since 2005,” Statistics Canada said.