MNI: Canada Escapes Recession With Flash Q3 GDP At +0.4% Pace

Canada just avoided recession in the third quarter with a flash estimate showing a 0.4% annualized GDP gain, supporting the idea the central bank's rate cut on Wednesday is the last one of the cycle.

The annualized pace is backed by a 0.1% quarter-over-quarter increase reported by Statistics Canada Friday. The quarter ended with a flash estimate of a 0.1% increase in GDP for September, following official readings of a 0.3% decline in August and a 0.3% gain in July. 

Over the last six months, the level of GDP has contracted but by less than 0.1%, StatsCan figures showed. 

Governor Tiff Macklem told reporters after cutting the key rate a quarter point to 2.25% that a small gain or decrease in third quarter GDP was likely but his view is growth in the second half of the year of less than 1% will feel mediocre to most Canadians even if it's not a recession. Unemployment has also climbed to the highest in a decade outside of the pandemic and the Bank says slack will persist in the economy with growth similarly lagging next year.

Signs of damage from the U.S. trade war ran through the report with declines in automobile wholesaling and the manufacturing industry. There was also a steep decline in some lumber exports in August after Donald Trump imposed fresh tariffs, and since then he's broken off trade talks with Prime Minister Mark Carney. At the same time, many Canadian firms are sidestepping tariffs by filling out paperwork to make them compliant with the USMCA pact, which Carney says gives Canada one of the lowest tariff rates. 

Weak growth is also what the Bank says will hold inflation near its 2% target even as core indexes are stuck around 3%. Some economists surveyed by MNI say the Bank will cut rates again early next year as economic weakness becomes the primary concern. 

While these GDP figures are important they aren't the last word because they are based on industrial output, while the official quarterly figures are based on a separate set of national accounts. Also, the 0.4% pace is short even of the Bank's reduced estimates presented this week. 

Part of the August contraction was linked to an Air Canada strike, and to the lowest utilities production since 2018 as a drought hindered hydroelectric production.