Canada growth outlook softens as S&P flags slower GDP momentum
Canada's economy is expanding at a more moderate pace after a stronger second quarter pushed growth above trend. S&P Global Ratings says higher inflation, trade uncertainty and weaker business sentiment are limiting the upside for GDP in the coming months.
Highlights
- S&P Global Ratings reports Canada's real GDP grew at a 3.3% annualized rate in Q2 2024, driven by household spending and private investment.
- Q3 growth momentum slows to more trend-like levels as S&P business surveys indicate broad-based strength has faded since Q2.
- S&P highlights that higher inflation, trade uncertainty, and weaker business sentiment constrain Canada's near-term upside despite continued support from domestic demand.
Third-quarter momentum eases
S&P Global Ratings reports that the latest business surveys suggest Canada's GDP growth slows to a trend-like pace in the third quarter after broad-based strength in the second quarter.The ratings firm's macroeconomic snapshot says real GDP on an expenditure basis grows at a 3.3% annualized rate in the second quarter. Growth is broad-based, with household spending and private fixed investment remaining the main drivers.
Net trade also contributes strongly in the quarter, reversing from a large negative contribution to a large positive one.
Inflation and trade risks weigh on outlook
S&P Global Ratings says higher inflation, trade uncertainty and weaker business sentiment point to only limited upside for growth over the next few months.The report, which states that it does not constitute a rating action, indicates that domestic demand still supports the economy even as momentum slows. Household spending and investment continue to underpin activity, but the near-term outlook remains constrained by cost pressures and caution among businesses.
UBS Global Wealth Management recently flagged that persistent inflation could keep U.S. monetary policy restrictive for longer, extending expectations for additional Federal Reserve rate hikes into 2027. Our earlier article explained that stronger-than-expected inflation readings and related risks—from supply disruptions to trade uncertainty—were reinforcing a higher-for-longer rate outlook, with markets repricing accordingly.
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