Canadian economic growth slows down, restrained by supply chain issues

Canada showed an unexpected economic growth slowdown during the third quarter, challenging the national recovery resilience.

According to a preliminary estimate from Statistics Canada, in September, gross domestic product was almost unchanged, following an already lower than expected growth by 0.4% in August. The overall growth in the third quarter reached 0.5%, with an annualized pace of about 2%.

Such results may throw into question the central bank’s ability to begin a cycle of interest rate hikes early next year, as investors are predicting, in attempt to restrain growing inflation. It’s quite a disappointing result, even with recently reduced estimates for the Q3, after an even weaker first half of the year.

“It’s one of the reasons to follow a less aggressive tightening cycle in 2022,” – Avery Shenfeld, chief economist at CIBC, noted.

On Wednesday, the Bank of Canada reduced its growth forecasts for the third quarter to 5.5%, even as it raised its inflation estimates. Meanwhile, according to Bloomberg poll, economists were predicting 4% annualized growth for the Q3.

The report shows that supply chain disruptions are affecting the trajectory of Canada’s economic recovery significantly. September’s slowdown was caused by declines in retail and manufacturing. In August, global supply chain issues also reduced sales of furniture and motor vehicles.

Although economists believe the supply chain issues will ease in the nearest future, it remains unclear how long it will continue.

And Canada isn’t the only one feeling this impact, as U.S. economic growth also slowed down in the third quarter, marking the lowest pace of the pandemic recovery period affected by supply disruptions. GDP reported a 2% annualized rate after 6.7% gain seen in the second quarter, the Commerce Department note.