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Canada’s financial system outperformed development expectations to finish the yr, which suggests the Financial institution of Canada may really feel much less strain to start out reducing charges within the close to time period, economists say.
Month-over-month GDP development rose 0.2% in November, Statistics Canada reported in the present day. That’s one tick above each economist expectations and StatCan’s personal flash estimate from October.
On prime of that, the company’s flash estimate for December is for even stronger development of 0.3%, which might lead to a fourth-quarter studying of +0.3%, or 1.2% annualized.
“Canada had a far firmer development backdrop to finish 2023 than anticipated, and this factors to an upward revision to 2024 estimates,” wrote BMO chief economist Douglas Porter. “In flip, there’s additionally much less strain on the BoC to start out reducing any time quickly.”
Development within the month was propelled by goods-producing industries (+0.6%), which recorded their strongest development charge since January 2023.
TD’s Marc Ercolao mentioned that, regardless of markets targeted on the timing of the Financial institution’s first charge cuts, “a heating up of the Canadian financial system might push expectations for a primary lower additional down the road.”
He added that the Financial institution is anticipated to stay in its present holding sample till inflation settles “decisively” at its 2% inflation goal, however that “robust information prints like in the present day’s GDP launch might be holding the Financial institution on their toes.”
Economists at Desjardins mentioned renewed energy within the closing quarter of 2023 may result in sustained development and higher-than-expected inflation heading into 2024.
“Nevertheless, we anticipate extra financial weak spot on the horizon,” they mentioned, “as ongoing mortgage renewals at increased charges and slowing inhabitants development weigh on the Canadian financial system.”
December GDP must be taken with a grain of salt, some economists say
However some economists warning about studying an excessive amount of into November’s constructive studying and the even stronger flash estimate for December.
“The re-acceleration of development in direction of the top of 2023 must be taken with a grain of salt,” cautions RBC economist Claire Fan, noting that early GDP estimates are vulnerable to revisions.
“And numerous the energy in November was attributable to one-off components comparable to recoveries from earlier manufacturing unit shutdowns and strike actions which can be unlikely to be repeated within the following months,” she added.
Moreover, even an annualized development charge of 1.2% for This autumn would mark the sixth consecutive quarterly decline when development is measured on a per capita foundation.
“Total we proceed to count on pressures from elevated rates of interest to curb shopper demand, stalling development in each output and inflation over the primary half of 2024 earlier than the BoC is anticipated to chop charges in June,” she wrote.
Statistics Canada will launch December GDP information on February 29, 2024.
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