Investing.com — Canada’s economy grew at a below-potential pace in the third quarter, increasing the likelihood of the Bank of Canada (BoC) cutting interest rates by 50 basis points in December, Citi analyst said in a note.
Gross Domestic Product (GDP) rose 1% on a seasonally adjusted annualized rate (SAAR) in Q3, well below the BoC’s October estimate of 1.5%. The central bank had initially projected growth as high as 2.8% in July.
Citi analysts pointed to uneven economic trends given household consumption grew 3.5% in the quarter on robust goods and services spending, with government expenditure also providing a boost.
However, business investment fell sharply, with machinery and equipment investment plummeting 27.7%.
Analyst said recent fiscal measures, including a sales tax holiday and household rebates, could sustain consumer spending in the coming months “but increased uncertainty around US trade actions could weigh further on investment.”
Analyst anticipates BoC to conclude in December that restrictive interest rates are overly suppressing demand, which will likely increase the chances of a 50-basis-point rate cut, bringing rates to the upper range of the neutral rate.
The BoC’s next policy announcement is scheduled for December 11.