© Reuters. People pay for their items at a grocery store in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio
By Ismail Shakil and Steve Scherer
OTTAWA (Reuters) – Canada’s economy grew 0.1% in October and is expected to expand at the same pace in November, data showed on Friday, a sign that the full impact of seven consecutive interest rate hikes this year has not yet taken place. .
October’s growth slowed from September’s 0.2% gain, which was an upward revision from a previously reported 0.1% increase, Statistics Canada said. October’s increase was in line with the median of analyst forecasts.
“September’s upward revision and October’s modest growth cause fourth-quarter GDP to beat the Bank of Canada’s forecast,” said Andrew Grantham, senior economist at CIBC Capital Markets, in a note.
The latest numbers show growth “may be holding up a little better than expected for the fourth quarter,” Robert Kavcic, senior economist at BMO Capital Markets, said in a note.
“The real question will be how things play out in the first half of next year, when the Bank of Canada’s aggressive rate hikes start to work their way more fully through the system,” Kavcic said.
The Bank of Canada raised rates a record 400 basis points in nine months to 4.25% – a level last seen in January 2008 – to fight inflation well above its 2% target .
Canada’s annual inflation rate fell to 6.8% in November, but was slightly higher than expected due to widespread price pressures, data showed earlier this week, leaving the door open for further rate hike in January.
The bank said it will rely more on data to set the key rate. Money markets are seeing more than a 50% chance of a 25 basis point hike on January 25th.
In October, service providers gained 0.3%, led by gains in the public sector, wholesale trade and customer-facing industries, Statscan said.
Goods-producing industries fell 0.7% in October after four consecutive months of growth, mainly due to a drop in mining, quarrying and oil and gas extraction. of gas and a weakening in the manufacturing sector.
November’s preliminary estimate showing a 0.1% monthly increase in GDP was driven by gains in utilities and wholesale trade, Statscan said.
“Although our forecast that GDP will remain unchanged this quarter carries upside risks, we continue to expect GDP to contract in early 2023,” said Stephen Brown, senior Canadian economist at Capital Economics, in a note.
The Canadian dollar was trading nearly unchanged at 1.3645 per greenback, or 73.29 cents US.