Economists see underlying signs of weakening in third quarter GDP numbers

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Canada saw stronger than expected economic growth in the third quarter, but economists warn the underlying numbers don’t paint such a positive picture.

Statistics Canada said Tuesday the economy grew at an annualized rate of 2.9 per cent between July and September.

That compares with 3.2 per cent growth in the second quarter.

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Although the headline growth rate is significantly stronger than forecasters had anticipated, the fall in consumer spending suggest higher interest rates are beginning to affect the economy more broadly.

“Sometimes the headline numbers look one way and the rest is quite a bit different,” said Karyne Charbonneau, CIBC’s director of economics.

Household spending fell for the first time since the second quarter of 2021, edging down 0.3 per cent.

Overall, economic growth was led by an increase in exports, non-residential structures and business investment in inventories.

The rise in exports was driven by an increase in crude oil and bitumen exports, though at lower prices.

Growth in those areas was moderated by declines in housing investment and household spending.

The economy is widely expected to slow down more noticeably in the fourth quarter in response to rising interest rates.

Since March, the Bank of Canada has raised interest rates six consecutive times, rapidly bringing its key rate up to 3.75 per cent.

The rate hikes were first felt in the housing market, which cooled dramatically as mortgage costs climbed.

With time, economists expect these rate hikes to affect spending in more parts of the economy.

On a quarterly basis, real gross domestic product in the third quarter increased by 0.7 per cent, beating out the federal agency’s preliminary estimate for growth, which was 0.4 per cent.

Monthly real GDP data shows the economy grew by 0.1 per cent in September, with the increase in real GDP driven by goods-producing industries.

Statistics Canada’s preliminary estimate for October suggests the economy stayed flat.

Tuesday’s quarterly GDP report also provides insight on how Canadians’ wages changed.

On a quarterly basis, nominal compensation for employees rose 1.2 per cent, which marks the slowest growth in compensation since the second quarter of 2020.

At the same time, household saving rates increased from 5.1 per cent in the second quarter to 5.7 per cent in the third quarter. For comparison, the savings rate in the third quarter of 2019 was 2.5 per cent.

The federal agency notes saving rates tend to be higher for higher income earners.

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