Canadian Quarterly GDP (Q3 2024)

Canada's GDP comes in below trend, but a rejuvenated consumer paints a brighter future

• The Canadian economy grew by 1.0% quarter/quarter annualized (q/q) in 2024 Q3, while 2024 Q1 and Q2 were revised higher (+2.0% q/q and 2.2% q/q from +1.8 q/q and 2.1% q/q). Stripping out external factors, final domestic demand came in at a very strong 2.4% q/q. The flash estimate for October showed a 0.1% monthly increase.
• Consumer spending was a major contributor in the quarter (+3.5% q/q from 0.9% q/q in Q2). Spending was focused on durable items (+11.8% q/q) like trucks, vans, and SUVs, following a computer hack last quarter that slowed sales. Of note, per capita consumer spending was positive after recording declines over most of the last two years. 
• Government spending (+4.8% q/q) was a key driver of growth again, as spending across "all levels of government" increased. Higher spending on government employee wages and purchases of goods and services has been a major theme over 2024.  
• Business spending fell 3.6% q/q, as a near 28% q/q drop in machinery and equipment pulled down the category following last quarter's bump on a huge aircraft shipment. Residential investment on the other hand rose 3.0% q/q, on greater resale activity – the first increase in a year. 
• Net trade subtracted 0.2 percentage points from growth, as declines in exports of "unwrought gold, passenger cars and light trucks, and travel services" pulled down the category

Key Implications

• Canadian economic growth came in as expected in 2024 Q3. And even though the headline print doesn't look encouraging, the underlying fundamentals remain strong. The lifeblood of the economy is the Canadian consumer, and they have been carrying the weight over 2024. As interest rates continue to fall alongside a wave of government stimulus over the coming months, we are looking for consumer spending to keep lifting GDP through at least the first half of 2025. 
• The Bank of Canada is set to meet in two weeks and debate over a 25 vs a 50 bp cut remains hot. Recall that the BoC cut by 50 bps in October because inflation fell too far below its 2% target while downside risks to the economy were mounting. Since then, inflation has quickly reversed course and there is greater momentum emerging with the Canadian consumer. Jobs data continues to support spending and the real estate market is starting to recoil after being suppressed under high rates. Even though GDP came in below the BoC's forecast for Q3, the momentum in the economy should be sufficient evidence for the BoC to scale back the pace of cuts come Dec. 11th.            

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