BoC's next rate hike in doubt after Canada GDP stalls — SkimNews
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- Statistics Canada reported real GDP was essentially unchanged in August, a second straight flat month that fell short of economists' calls and the agency's own early expectation of a 0.2% gain.
- Wholesale trade fell 1.4% in August, with motor vehicle and vehicle parts wholesalers posting their first decline in seven months; motor vehicles and parts manufacturing dropped 5.8%, partly because of a prolonged summer shutdown at a major auto assembly plant.
- Tu Nguyen of RSM Canada said the August declines only partially capture the breakdown in Canada-U.S. trade talks and that manufacturing and wholesale trade will keep seeing regular contractions under the re-escalated dispute, after both sides levied new waves of tariffs and restrictions.
- Statistics Canada's early September estimate showed real GDP declining 0.1% on manufacturing and mining, quarrying and oil and gas losses, though flash estimates still put third-quarter annualized growth at 1.3%, down from 3.3% in the second quarter, with official quarterly estimates due next month.
- Bank of Canada raised its benchmark rate by a quarter-point to 2.5% two days earlier — its first hike in more than three years — citing looming inflation risks, while policy makers revised up third-quarter growth to 2% annualized from 1.5%.
- BMO trimmed its growth outlook to 1.5%, while chief economist Doug Porter cautioned that census-related slowdowns may have overstated last quarter's weakness.
- Andrew Grantham of CIBC said the data support a pause at the BoC's December rate decision, yet LSEG market odds of a Dec. 9 hike stood at 57%, and Nguyen called December versus January a coin flip while leaning toward another quarter-point.
Why it matters: The BoC raised its rate to 2.5% two days before this data, and the weak readings undercut the 2% third-quarter growth projection it had just raised; odds of a Dec. 9 hike stood at 57%. Tariff-exposed manufacturers and wholesalers, already contracting under the re-escalated Canada-U.S. dispute, now face a central bank weighing a second quarter-point against stalling momentum.
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