The Canadian economy appears to be losing steam as the year draws to a close, despite aggressive interest rate cuts by the Bank of Canada, Bloomberg reports, citing new data released by Statistics Canada.
Preliminary figures indicate that the Gross Domestic Product (GDP) contracted by 0.1% in November, marking the first monthly decline this year, following a 0.3% expansion in October.
The October growth, which exceeded economist expectations of 0.2%, was driven largely by the mining, quarrying, and oil and gas extraction sector, which saw a 2.4% increase after three consecutive months of decline. However, this strength appears to have been short-lived, with the sector contributing to the overall decline in November. Similarly, the transportation and warehousing sector, which experienced growth for three straight months, also contracted in November after strike activity in October.
Despite the weaker November figures, the industry-based data suggest that the Canadian economy grew at an annualized rate of 1.7% in the fourth quarter, assuming no growth in December. This figure surpasses economist estimates of 1.5% but falls slightly short of the Bank of Canada’s 2% forecast. It would also represent an acceleration from the 1% growth reported in the third quarter.
The Bank of Canada has been actively seeking to boost economic growth after inflation remained within its target range of 1% to 3% for the past 11 months. The central bank has implemented substantial rate cuts, reducing borrowing costs by a cumulative 175 basis points since June, including a half-percentage-point reduction in early December.
Despite the rate cuts, the recent economic data suggest the central bank’s goal of stimulating the economy is facing some challenges. While sectors like real estate, which rose 0.5% in October, and accommodation and food services show signs of positive momentum, particularly in the housing market, these gains were not sufficient to offset losses in other key sectors. Real estate activity reached its highest point since April 2022, driven by strong home sales in major markets like Toronto and Vancouver. However, in November this momentum in real estate and accommodations was insufficient to offset declines in other areas including mining, oil and gas, and transportation and warehousing.
Looking ahead, the Bank of Canada is expected to slow down its rapid easing campaign. The central bank’s next decision is scheduled for January 29, when new economic forecasts will be released. However, various factors could complicate the outlook for growth and inflation in the coming months including an immigration crackdown, a two-month sales tax holiday, potential US tariffs and the political uncertainty surrounding Prime Minister Justin Trudeau.
