Economists Clash Over Impact of Sixth Consecutive GDP Drop – Will Rate Cuts Save the Day?

The Canadian economy faced another decline on a per-person basis, marking the sixth consecutive quarter of contraction as the impact of higher interest rates continued to hinder business investment. Despite some expectations, the gross domestic product (GDP) in the third quarter only grew at an annualized rate of one per cent, a significant drop from the 2.2 per cent seen in the second quarter. This figure falls short of the October forecast by the Bank of Canada, which anticipated a growth rate of 1.5 per cent.

Key Points from the Report:

• Real GDP per capita saw a decline of 0.4 per cent in the quarter, further highlighting the economic challenges faced by Canadians.
• Economists are in disagreement regarding potential rate cuts by the Bank of Canada in the upcoming months. While some suggest a quarter-point reduction, there are arguments for a larger cut.
• The Bank of Canada’s key interest rate currently stands at 3.75 per cent, impacting consumer spending and investment decisions.
• Despite slight improvements in household and government spending, slower inventory accumulation and reduced business investment continue to restrain economic growth.
• The month of September witnessed a marginal increase of 0.1 per cent in real GDP, and preliminary estimates point towards a similar growth trend in October.
• Household net savings in the third quarter grew as disposable income outpaced spending, with the savings rate reaching a three-year high of 7.1 per cent.

Following the lower-than-expected economic growth, Bank of Canada governor Tiff Macklem initiated a rare half-percentage point rate cut in October, a response to inflation returning to the bank’s two per cent target. Macklem hinted that further cuts would depend on the future economic data.

In conclusion, the Canadian economy faces ongoing challenges amidst volatile growth figures and uncertain market conditions. With diverging opinions within the economist community and the future policy decisions of the Bank of Canada remaining uncertain, it is imperative for businesses and consumers alike to remain vigilant and agile in responding to the changing economic landscape. Stay informed, plan ahead, and adapt to the evolving financial environment to navigate through these challenging times efficiently.