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Canada: Expect 1.6% growth in the quarter – BMO CM

Benjamin Reitzes, Canadian Rates & Macro Strategist at BMO Capital Markets, suggests that the Canadian economy cooled sharply in Q3 after a torrid four-quarter run where growth averaged 3.7%, the strongest since 2006 and are looking for 1.6% growth in the quarter.

Key Quotes

“Consumer spending decelerated, as retail sales volumes fell 1.4% annualized, though spending on services should keep consumption positive. Business investment is expected to advance modestly, while housing should benefit from rising housing starts with lower home sales limiting the increase. We also look for government to contribute to growth, consistent with the pipeline of stimulus that should be underway. Net exports are expected to be a big negative, subtracting at least 3 ppts from growth in the quarter. The latter also introduces some downside risk to our call.”

“September GDP is expected to bounce back after the prior month’s contraction. However, the rebound isn’t likely to be particularly strong at just 0.1%. Growth was likely driven by firming home sales and rising manufacturing activity. Wholesale and retail activity was surprisingly weak in the month and will act as a drag. However, mining, oil & gas represents an upside risk, as a portion of the maintenance-driven decline in August is expected to be reversed which could add about 0.05 ppts to the headline. There could also be some upside to manufacturing as maintenance caused a big drop in chemical production in August (though one plant was scheduled to be closed until November). Note that hours worked were up sharply in the month, providing some upside to our call.”

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