Canada’s economic growth wasn’t as strong as expected in the second quarter and appears to have decelerated in July, signs that rising interest rates are cooling economic activity sooner than many forecasters anticipated.
Canada’s economy grew at an annualized rate of 3.3 per cent in the second quarter, Statistics Canada reported Wednesday, driven by strong consumer spending and business investment in inventories.
This was moderated by a fall in residential property spending and an increase in imports relative to exports, which pushed the quarterly GDP result below the Bank of Canada’s forecast of 4-per-cent annualized growth and the Bay Street consensus of 4.4-per-cent growth.
Preliminary estimates for July show that GDP declined by 0.1 per cent that month. That suggests third-quarter growth is on track to undershoot the central bank’s estimate of 2 per cent, on an annualized basis, and could mark a turning point for the Canadian economy after a period of heightened economic activity that accompanied the lifting of pandemic-related restrictions.
“While GDP growth was solid in Q2 as a whole, it was weaker than anticipated and a slow end to the quarter, plus soft start to Q3 suggest that the economy is reacting quicker to rising interest rates than the Bank of Canada may have been anticipating,” Canadian Imperial Bank of Commerce economist Andrew Grantham said in a note to clients.
The central bank has increased interest rates at four consecutive meetings since March, including a full percentage point rate hike in July, the largest single move since 1998. This campaign to raise borrowing costs is explicitly aimed at slowing down economic activity in an effort to tame runaway inflation.
While rate increases can take six to eight quarters to have a full impact, Wednesday’s GDP data show that higher borrowing costs are already squeezing rate-sensitive sectors like housing. Residential property spending contracted around 28 per cent on an annualized basis in the quarter.
That’s unlikely to push the Bank of Canada off course, private-sector economists argue. Governor Tiff Macklem signalled this month that he intends to keep raising interest rates into what economists call “restrictive territory,” where borrowing costs act as a brake on economic activity.
Financial markets are pricing in a 75-basis-point rate hike for the Sept. 7 rate decision, while Bay Street forecasters suggest that increases of 50, 75 or 100 basis points are all on the table for next week. (A basis point is one hundredth of a percentage point.)
“Inflation remains priority 1, 2, 3, and 4 for the BoC, so we don’t think today’s print will change the bank’s thinking heading into the September interest rate announcement (particularly given the strength in household spending),” Toronto-Dominion Bank rate strategists Andrew Kelvin, Robert Both and Chris Whelan wrote in a note to clients.
“We continue to look for a 75bp rate hike next week, but the softer hand-off into Q3 hints at trouble ahead,” they wrote. Looking further ahead, they suggested that the central bank may need to slow its pace of rate hikes in October, and could opt for a 25-basis-point rate hike at that point.
Royce Mendes, head of macro strategy at Desjardins Capital Markets, said that a 50-basis-point rate hike next week is now more likely.
“With the Bank of Canada already having raised rates 100bps in July, central bankers might be willing slow the pace of hikes ahead of their peers by only pushing rates up another 50bps next week. It’s possible that monetary policymakers move more than that, but there are clearly cracks beginning to form in the foundation of the economy,” he wrote in a note to clients.
Canadian consumer spending remained robust as people bought new clothing and shoes for return to office work, and splurged on travel, restaurants and other services that have reopened as pandemic restrictions have lifted.
Business spending on inventories also boosted growth in the quarter, with a particularly notable jump in farm inventories.
“Increased production of agricultural products in the second quarter, notably wheat and canola, resulted in the largest increase in farm inventory investments since 1961, the year when quarterly data were first recorded,” Statscan said.
This was offset by a decline in residential property spending and consumer spending on durable goods. Net trade also weighed on GDP in the quarter, with a rise in imports exceeding exports.
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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
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