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(Bloomberg) -- The Canadian economy appeared to lose its strength toward the end of this year even as the central bank cut interest rates at a rapid pace.
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Advance data suggested gross domestic product shrank 0.1% in November, the first monthly contraction this year, after a 0.3% expansion a month earlier, Statistics Canada said Monday. The October figure beat economist expectations of 0.2% in a Bloomberg survey.
With October’s stronger-than-expected gain and November’s decline, the industry-based data point to the economy growing at a 1.7% annualized pace in the final quarter, assuming December growth is flat. That would be above economist estimates of 1.5% but below the central bank’s forecast of 2%. It would also be an acceleration from the expenditure-based 1% growth in the third quarter.
Canadian government two-year bond yields fell just over a basis point to 3.038%, while the loonie extended declines, dropping to C$1.4430 per US dollar as of 9 a.m. in Ottawa.
Policymakers at the Bank of Canada want to see economic growth pick up after inflation was within their target range of 1% to 3% for the past 11 months. They reduced borrowing costs by a half percentage point for the second straight meeting earlier this month, bringing the accumulative rate cuts since June to 175 basis points.
Governor Tiff Macklem and his officials have already signaled that they’re ready to slow down their rapid easing campaign, and output figures that are slightly below their forecasts will likely keep them cutting, albeit at a more gradual rate next year.
Their next decision is due on Jan. 29, when they will also publish a new set of economic forecasts. But Canada’s immigration crackdown, a two-month sales tax holiday, potential US tariffs and the uncertainty surrounding the future of Prime Minister Justin Trudeau will affect the outlook for growth and inflation in the months ahead.
“While there is evidence that interest-rate sensitive areas of the economy have already strengthened as the Bank of Canada has lowered rates, further interest rate relief will be needed in the New Year to help close the output gap,” Andrew Grantham, economist at Canadian Imperial Bank of Commerce, said in a report to investeors.
The bank’s benchmark overnight rate is currently 3.25%. Grantham said CIBC continues to see rates needing to dip slightly below neutral, forecasting a low of 2.25% in 2025.