Canadian GDP Rises On Gov Spending, Big Revisions To Slow Rate Cuts: BMO

Canada's economy grew in the third quarter of 2024, mainly due to increased government spending and household borrowing, according to Statistics Canada. Real Gross Domestic Product (GDP) rose by 0.3% during this period, following upward revisions of 0.5% growth in both the first and second quarters.

Despite this overall growth, per-capita GDP—which measures economic output per person—declined by 0.4% in the third quarter, marking the sixth consecutive quarterly drop. This suggests that while the economy is expanding in total, individual economic contribution is decreasing.

The growth was primarily driven by a 0.9% increase in household spending, particularly on new vehicles and financial services, and a 1.1% rise in government consumption across municipal, provincial, and federal levels. Notably, government spending accounted for approximately 94.5% of the total GDP growth in this quarter.

However, other economic areas showed less positive trends. Business capital investment and exports declined, and non-farm inventory accumulation slowed, indicating potential weaknesses in the economy's productive sectors.

Economists at BMO highlight that significant upward revisions to past GDP data have altered the economic outlook. These revisions suggest the economy has been performing better than previously thought, which may influence the Bank of Canada's decisions on interest rate cuts. With the economy showing unexpected strength, the central bank might opt for more gradual rate reductions to avoid overstimulating growth.

In summary, while Canada's GDP has risen due to government spending and household borrowing, the decline in per-capita GDP and weaknesses in business investment and exports raise concerns. The recent GDP data revisions imply a stronger economy than earlier estimates, potentially leading the Bank of Canada to slow the pace of interest rate cuts in response.