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Canada: Bounce in GDP growth unlikely to be sustained – RBC CM

According to Paul Ferley, assistant chief economist at RBC Capital Markets, the Canada’s GDP activity in October bounced back 0.3, which was also boosted by a robust 3.6% rebound in oil and gas production and though the bounce in GDP growth is encouraging, it is not expected to be sustained.

Key Quotes

“Activity in November is expected to be weighed down by the Canada Post strike and a weakening in oil prices. These factors, along with the disappointing momentum going into Q4, are projected to result in activity in the quarter only rising at an annualized rate of 1.1%.”

“The outlook is not expected to improve in the first quarter of 2019 despite the return to work by the postal workers as the mandated oil production cuts by the Alberta government will keep annualized growth close to 1%. Beyond Q1, a lessening impact from the oil production cuts along with both Bank of Canada policy still remaining moderately accommodative and the U.S. economy continuing to grow are projected to result in the pace of quarterly activity bouncing back. This is expected to result in 2019 annual growth of 1.7%.”

“With the Canadian economy at capacity, growth in 2019 close to the economy’s potential rate of 1.8% is likely what the policymakers are striving to achieve. To sustain this pace of growth our expectation remains that the Bank of Canada will continue to gradually raise the overnight rate currently at 1.75% closer to a so-called neutral rate within the range of 2.50% to 3.50%. However, the next hike is expected to wait until the central bank is assured that any near-term weakness proves temporary.”

 

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