OTTAWA — The pace of economic growth in Canada slowed in the third quarter, boosted by higher business investment and increased household spending, but weighed down by a drop in exports, Statistics Canada said Friday.
The federal agency said real gross domestic product grew at an annualized rate of 1.3 per cent in the three-month period compared with a revised reading of 3.5 per cent for the second quarter.
The initial estimate had been a reading of 3.7 per cent released in August.
Economists had expected annualized growth of 1.2 per cent in the third quarter, according to financial markets data firm Refinitiv.
The latest reading on the economy comes ahead of the Bank of Canada’s interest rate announcement next week. The central bank is expected to keep its key interest rate target on hold at 1.75 per cent.
Frances Donald, chief economist and head of macro strategy at Manulife Investment Management, said the strength in business investment was a good sign for the Canadian economy.
Statistics Canada said business investment rose 2.6 per cent in the third quarter, its fastest pace since the fourth quarter of 2017.
“It appears Canadian businesses are back into spending mode. That is absolutely critical to Canada’s so-called resilience because as our consumer weakens over the course of 2020, we need businesses to pick up the slack,” Donald said.
“Today’s data point indicated to us that there is perhaps some reasons to be cautiously optimistic about business spending in Canada.”
Donald said the result for the quarter was in line with the Bank of Canada’s forecast and the central bank will likely want to see a significant departure from its expectations before it makes a move to cut its key interest rate.
“My personal view is that the Bank of Canada will have to engage in rate cuts, but likely only in the second half of 2020,” she said.
“Moreover, while we talk a lot about downside risks for the Canadian economy, we should also be considering the idea that there are upside risks as well. And when we begin to see businesses who likely have some pent up demand start to engage in capital spending and hiring activity, that is an upside risk that we should be watching just as closely.”
In addition to the increase in business investment, household spending increased 0.4 per cent in the third quarter, helped higher by purchases of new trucks, vans and sport utility vehicles, which climbed 4.9 per cent.
Offsetting the growth was weakness in exports.
Export volumes fell 0.4 per cent in the third quarter after climbing 3.1 per cent in the second quarter. The overall drop came as exports of non-metallic minerals fell 15.2 per cent and farm and fishing products dropped 4.5 per cent. Exports of metal ores and concentrates were up 11.6 per cent and clothing and footwear products rose 17.3 per cent.
Import volumes were flat in the third quarter after a 0.9 per drop in the second quarter.
TD Bank senior economist Brian DePratto said the gain in domestic demand was encouraging, as was the fact that a good chunk of the gain can be put down to strength in business investment.
“It is not all smooth sailing ahead — the Canadian economy will face near-term headwinds in the form of labour disruptions and a weak global backdrop. But, with today’s data, particularly the new historic context that came with Statistics Canada’s revisions, the economy appears to be a bit more resilient than previously thought,” DePratto wrote in a report.
“Still, with only modest growth expected going forward and the pace of household spending trending lower year-on-year, there is still plenty to fret about.”
In its fall monetary policy report, the Bank of Canada had forecast growth at an annual rate of 1.3 per cent in the third quarter.
The central bank has stood out from its international peers by keeping its key interest rate steady in 2019, while many others have moved to lower rates and increased economic stimulus in response to a weakening global economy.
The Bank of Canada has said the domestic economy has held up well in many respects, but that it expects it will be “increasingly tested” and that it will monitor how much the global slowdown spreads beyond manufacturing and investment.