Real GDP per capita declines for 6th consecutive quarter, household savings rise

The Canadian economy shrank on a per-person basis for a sixth consecutive quarter as higher interest rates continued to weigh on business investment.

Statistics Canada’s gross domestic product report said the economy grew at an annualized rate of one per cent in the third quarter, down from 2.2 per cent in the second quarter.

The figure is in line with economists’ expectations, but lower than the Bank of Canada’s October forecast of 1.5 per cent.

Growth on a per capita basis fell 0.4 per cent in the quarter.

Economists reacting to the latest GDP figures continue to be divided on whether the Bank of Canada will cut its key interest rate by a quarter or half a percentage point at its meeting next month.

TD director of economics James Orlando wrote in a client note that even though growth came in lower than the central bank’s forecast, “the momentum in the economy should be sufficient evidence for the (Bank of Canada) to scale back the pace of cuts.”

Meanwhile, CIBC senior economist Andrew Grantham said the weaker growth justifies a larger cut, “although next week’s employment figures are still likely more important in making a final determination.”

The central bank’s key interest rate currently stands at 3.75 per cent.

Friday’s report said higher household and government spending was partly offset by slower inventory accumulation, lower business capital investment and lower exports.

Economic growth remained weak in the month of September, with real GDP rising 0.1 per cent. A preliminary estimate suggests similar tepid growth in October as well.

Despite the softness, however, household net savings in the third quarter increased as disposable income grew at double the rate of spending.

The report said high wages and lower interest rates helped the household savings rate hit a three-year peak in the third quarter, reaching 7.1 per cent.

By comparison, it was below three per cent at the end of 2019.

“This continued acceleration in the savings rate now suggests to me that Canadians continue to sock away cash for those upcoming mortgage renewals in 2025 and 2026,” said Randall Bartlett, senior director of Canadian economics at Desjardins, in an interview.

Bank of Canada senior deputy governor Carolyn Rogers noted in a speech earlier this month that more than four million mortgages, or about 60 per cent of all outstanding mortgages, will renew over the next two years.

Most of those borrowers, she said, will likely face significant increases in their payments.

Last month, governor Tiff Macklem announced a half-percentage point rate cut in response to inflation returning to the bank’s two per cent target, but said the size of the next cut would be determined by incoming economic data.

Canada’s annual inflation rate bounced back up to two per cent in October after falling to 1.6 per cent the previous month.

Bartlett said although the details of the latest GDP report were weak, significant upward historical revisions to growth suggest there’s been less slack in the economy than previously thought.

“So we think that very strongly reinforces our call for a 25 basis point cut in December, as opposed to a 50 basis point cut,” Bartlett said.

This report by The Canadian Press was first published Nov. 29, 2024.