Canada's economy expands at healthy pace, easing way for rate hike - Financial Post

November's estimated rise would bring the economy almost back to pre-pandemic levels

Author of the article:

Bianca Bharti

Publishing date:

Dec 23, 2021  •  5 minutes ago  •  2 minute read  •  9 Comments

Canada's real gross domestic product rose 0.8 per cent in October from September, in line with analyst estimates, while November GDP was most likely up 0.3 per cent, Statistics Canada said. Photo by Brent Lewin/Bloomberg

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The economy expanded at a healthy pace in October due to growth in almost all industrial sectors, which should keep the Bank of Canada on track to raise rates early next year. However, the raging Omicron variant could throw in a few speed bumps along the way.

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Gross domestic product climbed 0.8 per cent at the start of the fourth quarter, Statistics Canada reported on Dec. 23. Despite disastrous and costly floods in British Columbia last month, preliminary estimates for November show growth of 0.3 per cent.

“The strong rise in GDP in October and the preliminary estimate of another solid gain in November imply that fourth-quarter GDP growth will be stronger than the Bank of Canada anticipated, and means the Bank may not be too concerned about the renewed disruption from the deteriorating coronavirus situation,” Stephen Brown, economist at Capital Economics, wrote in a note to clients.

Economic growth for the fourth quarter so far puts Canada on track for a 5.5 per cent increase, annualized, even if the vicious Omicron variant delivers some blows to output in December, Brown said. That would push GDP above the central bank’s estimate of four per cent growth for the final quarter of 2021, a sign that the recovery is going better than expected.

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The manufacturing sector made a comeback in October, rebounding 1.8 per cent after a 1.5 per cent contraction in September. However, petroleum and coal product and paper manufacturing diminished some of the gains which coincided with activity at gas stations dropping 3.6 per cent in the month.

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Construction saw a boost after four declines in the past five months, rising 1.6 per cent. Real estate activity followed in tandem, expanding 0.8 per cent, the largest increase since December 2020.

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The accommodation and food sector continued to struggle in October, with output dropping 0.5 per cent. The arts, entertainment and recreation sector, on the flip side, surged 7.1 per cent as consumers grew more confident with the easing of capacity limits to attend events in person. That growth could disappear though as rising COVID-19 cases prompt some provinces to bring back stricter restrictions.

“But given the stronger starting point in the fourth quarter, the negative effect of those restrictions – which will ultimately be temporary – may not delay the Bank’s tightening plans,” Brown said.

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Canada's economy expands at healthy pace, easing way for rate hike - Financial Post
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