By Ketki Saxena
Investing.com -- Canadian GDP rose 2.9% (annualized) in Q3, a significantly stronger increase than expected by economists, and nearly double the forecast by the Bank of Canada in its October Monetary Policy Report.
The Canadian economy continued to be supported by a rebound in net trade as exports soared on demand for commodities and loosened supply chains, reversing a pullback in the quarter prior.
However, analysts noted signs of softening including a decline in consumer spending, and continued retrenchment in housing markets. Spending by households fell by 1% compared to Q2, while residential investment fell by 15.4%, building on a 31.5% decline in Q2.
Nathan Janzen, Assistant Chief Economist at RBC (TSX:RY) notes “Consumer confidence has softened along with the pullback in housing markets, weaker financial markets, surging inflation, and higher borrowing costs. And higher interest rates will continue to gradually feed through more significantly to actual household borrowing costs in quarters ahead.”
Janzen also notes that most of the GDP growth came earlier in the quarter, with growth softening set to continue into Q4 with outright declines in output next year. “Today's data remains consistent with our own outlook for softer GDP growth in Q4 and a 'moderate' contraction in output in the first half of 2023”.
Derek Holt, Vice President and Head of Capital Markets Economics at Scotiabank (TSX:BNS), however takes a different perspective. He notes that today’s data , which“doubled BoC and consensus forecasts” shows that “Canada’s economy continues to outshine just about everyone else’s by posting much stronger than expected GDP growth”.
“Tell me one other notable economy out there that is performing better than Canada’s. It can’t be done”, Holt writes, hammering home the point. “GDP growth has been on fire for five consecutive quarters.” He further points out that “The slowing narrative is based upon very incomplete data for October and zero data for the rest of the quarter”, and based on “very tentative data and was supposed to have happened in Q3 but did not.”
Holt also notes that the Canadian economy continues in conditions of excess demand even as the Bank of Canada hikes rates to cool inflationary pressures.