Tax ‘holiday’ may spur economic growth, but ‘dark cloud’ hangs over future

The Canadian economy underperformed the Bank of Canada's call for 1.5 per cent annualized growth in the third quarter, and per-capita GDP fell for a sixth consecutive quarter.

The Bank of Canada will have to grapple with an underperforming economy, signs of a returning consumer and a “dark cloud” hanging over the nation’s trade prospects as it gears up for its final interest rate decision of the year.

Canada’s economy did continue to grow in the third quarter, Statistics Canada reported on Friday.

On an annualized basis, real gross domestic product rose one per cent between July and September, according to StatCan. That marks a slowdown from 2.2 per cent annualized growth in the previous quarter.

The results undershot the Bank of Canada’s call for 1.5 per cent annualized growth in the third quarter, which had already been revised down from an earlier forecast of 2.8 per cent.

StatCan pointed to increased consumer spending, particularly on new trucks, vans and SUVs. Spending was also higher across all levels of government in the third quarter, the agency said.

And while consumer spending was credited with keeping the economy afloat in the period, StatCan said that households were saving more overall. The net household savings rate rose in the third quarter as disposable income (up 2.3 per cent) rose at nearly double the rate of spending (up 1.2 per cent).

RSM Canada economist Tu Nguyen said in a release Friday that signs of returning consumer confidence will power the holiday shopping season, supported even more by the federal government’s GST/HST “holiday.”