Research Team at Nomura, notes that the Canadian economy expanded by 3.5% q-o-q ar in Q3, in line with expectations, while Q2 growth was revised higher to -1.3% vs. -1.6% q-o-q ar previously.
Key Quotes
“As expected, a strong rebound in exports was the main source of growth, contributing +2.6pp and continued strength in consumer spending and inventory accumulation were the other sources of growth, contributing 1.5pp and 1.0pp respectively. On the flip side, a further decline in business investment, the government sectors and imports were the main sources of drag on growth, reducing growth by 0.3pp, 0.3pp and 1.1pp respectively.”
“Overall, the report shows that the economy has rebounded from the contraction in Q2 due to the wildfires, as energy exports normalized. However, the data suggest that there is little momentum in the rest of the economy with final domestic demand only increasing by a modest 0.9% q-o-q ar. Moreover, the data for Q3 suggest that the impact of the fiscal stimulus, while positive, was relatively small. As such, as we expected, there is strong evidence that households saved rather than spent their increases in disposable income coming from the family tax credit.”
“With domestic growth momentum remaining weak, the Bank of Canada (BoC) is expected to remain focused on the strength of exports, especially excluding energy. As such, the trade report on Tuesday will be a key focus.”
“We do not believe that Q3 GDP will change materially the BoC’s view of the economy, as growth was roughly in line with its expectations (+3.2% in the October MPR). As such, we continue to believe the BoC will keep its policy rate unchanged at next week’s meeting and for most of 2017.”
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