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.
