Canada economy weaker than expected, chances of early rate hike seen smaller – Reuters

OTTAWA, Oct 29 (Reuters) – The Canadian economy most likely underperformed in the third quarter, official data suggested on Friday, prompting analysts to forecast the Bank of Canada might raise interest rates more slowly than expected.

The economy expanded by 0.4% in August and looked set to show no growth in September, when supply chain issues hit auto exports, Statistics Canada said.

Third quarter annualized GDP rose by just 1.9%, it said in a flash estimate, much less than the 5.5% forecast by the Bank of Canada on Wednesday. The central bank also signaled a rate hike could come as soon as April 2022. read more

Even though the bank and Statistics Canada use slightly different ways of measuring GDP, analysts said the third quarter projections made an early hike less likely.

“The risks tilt toward a second consecutive quarter in which the central bank’s outlook was on the high side. … It’s one piece of evidence on the side of a less aggressive tightening cycle next year,” said Avery Shenfeld, chief economist at CIBC Capital Markets.

The Canadian dollar was trading 0.4% lower at 1.2387 to the greenback, or 80.73 U.S. cents.

Stephen Brown, senior Canada economist at Capital Economics, estimated third quarter annualized growth would be what he called a disappointing 2.1%.

“This reduces the chance of the Bank hiking interest rates as soon as the second quarter next year,” he said.

As of September, Canada’s GDP remained about 1% below pre-pandemic levels, Statistics Canada data showed.

The August gain of 0.4% was behind analyst estimates of 0.7%. Overall, 15 of 20 industrial sectors posted increases, with services-producing industries up by 0.6% while goods-producing industries declined 0.1%.

Reporting by Julie Gordon in Ottawa; editing by John Stonestreet, Chizu Nomiyama and Jonathan Oatis

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