Canada's economic growth for the third quarter appears unlikely to meet the Bank of Canada's projections, according to several prominent economists who warn the economy might struggle to gain momentum as 2025 concludes.
Questionable Growth Projections
Statistics Canada is scheduled to release crucial economic data on Friday, including gross domestic product figures for September, a preliminary estimate for October, and the official third-quarter GDP numbers. Multiple economists suggest that disappointing data, the ongoing United States government shutdown, and potentially overoptimistic previous estimates could make the central bank's annualized 0.5 percent quarterly growth target difficult to achieve.
David Rosenberg, president of Rosenberg Research & Associates Inc., expressed particular concern about the economic trajectory. "Given the loss of momentum we are seeing, the Bank of Canada's prediction of a recovery to a one percent pace into year-end is looking tenuous at best," Rosenberg stated in a recent note. He added that even one percent growth would be underwhelming considering the central bank's aggressive interest rate cuts, which have brought rates down to 2.25 percent from five percent in June 2024.
Technical Recession Concerns
The third-quarter performance carries significant implications for Canada's economic health. If the economy manages to expand by 0.5 percent during this period, it would technically avoid a recession by preventing a second consecutive contraction after the economy pulled back by 1.6 percent annualized in the second quarter.
Statistics Canada has projected that September GDP will rebound to a modest 0.1 percent increase following a 0.3 percent decline in August. According to Rosenberg's analysis, this would put the economy on track for approximately 0.4 percent growth.
JPMorgan Chase & Co. analysts have joined the chorus of skepticism regarding the Bank of Canada's GDP forecasts. The financial institution anticipates third-quarter growth will come in lower than expected due to slowing personal consumption and weakness in fixed investments.
Multiple Economic Headwinds
Recent retail data has provided additional cause for concern. Statistics Canada reported on November 21 that retail sales contracted by 0.7 percent in September compared to the previous month, matching economist surveys conducted by Bloomberg. The agency's preliminary estimate for October suggests sales will remain flat.
JPMorgan analysts indicated they expect consumer spending to stay soft throughout the remainder of the year, "reflecting increased caution amid ongoing economic uncertainty and a weaker labour market."
The American government shutdown has created additional complications for Canada's economic outlook. The political impasse in Washington has delayed the release of Canada's September trade data, creating uncertainty around cross-border commerce.
"We have less visibility on the contribution from net trade than usual—the U.S. government shutdown has delayed the release of Canada's September trade data—but we think that it was about neutral last quarter," JPMorgan analysts noted. They highlighted that a significant net trade drag had pushed growth into negative territory in the second quarter despite strong household consumption at that time.
The combination of these factors suggests that the Bank of Canada's economic projections for both the third and fourth quarters face substantial challenges as 2025 draws to a close.
