October GDP Expected to Show Minor Improvement Following Weak Economic Indicators

As we approach the end of 2024, the final significant data point from Statistics Canada will be the gross domestic product (GDP) release for October, scheduled for Monday. This marks the last GDP figure before the Bank of Canada convenes its meeting on January 29. Analysts forecast that the GDP will increase by 0.2%, which would represent the most substantial monthly growth since April and a slight uptick from the 0.1% advance estimated for the previous month.

In October, we anticipate positive activity in both the goods and services sectors. Early reports indicate a boost in oil production in Alberta, while the manufacturing sector has also shown signs of strength, with sales (excluding price fluctuations) increasing by 1.4%. Although retail sales volume remained steady during October, wholesale sales saw a rise, and the residential real estate sector experienced a significant uptick.

Despite this growth, the sluggish performance in previous months suggests that the overall GDP growth for the fourth quarter will fall below the Bank of Canada’s forecast of 2%. This has already been acknowledged by the central bank, which implemented a 50 basis point cut to the overnight interest rate in December.

Looking ahead, we predict that the preliminary estimate for November's GDP will reflect limited growth. This may be influenced by a possible uptick in the entertainment sector, as numerous concerts held in Toronto attracted large audiences. Additionally, a 0.2% decrease in the total hours worked in November is partially due to labor disputes at ports and the Canada Post strike. Initial observations regarding consumer spending also point to a softer performance in November, with early holiday shopping potentially being delayed in anticipation of a GST holiday that began in mid-December.

The Bank of Canada made it clear in December that they plan to proceed cautiously with interest rate cuts. Nonetheless, it is anticipated that the overnight rate will eventually need to decrease to stimulate the economy, pushing it below the Bank’s current neutral range estimate of 2.25% to 3.25%. This adjustment aims to prevent inflation from sliding significantly below the 2% target.

GDP, Economy, Canada