Canada will be releasing its monthly GDP report for the September period this Friday at 1:30 pm GMT. And since September is the final month of Q3, that means that Canada’s Q3 GDP report will be released as well. That also means that the Loonie will likely get a volatility injection.
What happened last time?
- August GDP (m/m): +0.1% vs. +0.0% expected, +0.2% previous
Canada’s August GDP report printed a 0.1% month-on-month increase, beating expectations for a flat reading but slower compared the previous month’s 0.2% rise.
A closer look at the details showed that the weakness was broad-based since output declined in 12 of Canada’s 20 industrial sectors.
However, output from mining and oil and gas extraction rebounded by 0.9% month-on-month (-0.5% previous) while the finance and insurance industry printed a 1.0% recovery (-0.4% previous). And those greatly helped in offsetting the declines from the other industrial sectors.
Anyhow, the Loonie had a bullish knee-jerk reaction to the better-than-expected reading. However, the details of the GDP report were a bit disappointing and oil prices were falling at the time, so the Loonie eventually succumbed to selling pressure.
What’s expected this time?
- September GDP (m/m): 0.1% expected, same as previous
- Q3 GDP (q/q annualized): 2.0% expected vs. 2.9% previous
The general consensus among economists is that Canada’s economy grew by 0.1% month-on-month in September.
And as mentioned earlier, Canada’s Q3 GDP reading will also be revealed. And most economists think that Canada’s economy slowed down in Q3 since the most economists forecast that a 2.0% quarter-on-quarter annualized rate of expansion.
Do the leading and related economic indicators offer any clues?
- Retail trade increased by 0.2% in September after printing a flat reading in August.
- However, retail trade for all of Q3 only increased by 0.9%, which is a weaker compared to the 1.1% increase in Q2.
- Canada’s trade deficit narrowed from narrowed $551 million to $416 million in September, thanks to exports rising by 0.2% as imports fell by 0.4%.
- Moreover, exports for all of Q3 are 2.56% higher while imports are 0.15% lower, so trade will like have a positive contribution for the quarterly reading.
- The trade report also showed that imports of industrial machinery and other capital goods increased by 4.0% in Q3, but this is slightly weaker compared to the 4.3% increase in Q2.
- The value of building permits issued rose by 0.4% in September after slumping by 1.1% back in August.
- Unfortunately, the value of building permits issued for all of Q3 is lower by 1.1% compared to Q2.
What about historical tendencies? Do they offer additional clues?
Well, the readings for September tend to be stronger (more often than not).
However, economists appear to have a tendency to overshoot their guesstimates since there are more downside surprises over the years. However, that seems to be changing. In fact, the September readings for the last two years were both better-than-expected.
To sum it all up, there’s a consensus that Canada’s economy grew by 0.1% month-on-month in September, matching the previous month’s rate of expansion. However, there’s also a consensus that GDP growth slowed on a quarterly basis.
The available GDP components point to potentially stronger monthly GDP growth in September. And this is backed by historical trends. However, historical trends also show that economists tend to overshoot their guesstimates for the monthly GDP reading. And that skews probability slightly more towards a potential downside surprise.
But as always, just keep in mind that we’re playing with probabilities here, so there is always a possibility for an upside surprise. After all, the tendency for a downside surprise hasn’t been holding up in recent years and the last two years even printed back-to-back upside surprises.
As for the quarterly reading, the available GDP components point to potentially weaker growth, which is in-line with consensus.
Anyhow, the Loonie usually has a knee-jerk reaction to the monthly GDP reading. But since the quarterly reading will be released as well, then that usually takes precedence.
As for follow-through buying or selling, that would depend on the details of the report and oil’s price action. So just make sure to keep track of oil prices as well. And if you didn’t know, you can check out oil prices at our Live Market Rates page.