Weak data drives Q3 forecast down: Scotia

The third-quarter GDP reading from Scotia Economics’ model has dropped, prompted by softer-than-expected retail sales projections for September plus surprise weakness in manufacturing.

Preliminary data from Statistics Canada indicated a likely decline in retail sales for September and a drop in manufacturing sales, which combined to push down the Scotia model’s forecast for Q3 GDP: to 2.24% from 2.86%.

“In the first few cold days of this fall, the outlook for the Canadian economy started to cool somewhat as well, as the pair of releases by Statistics Canada showed this morning,” Scotia said in a report.

That report noted that the outlook for the quarter is “still significantly positive, with the expectation that the rebound in services, driven by the re-opening of the economy in the summer, will be shown to have lifted growth.”

However, there are still downside risks to the outlook, Scotia noted, particularly if it turns out that the rebound in services was hampered by labour shortages as well as by the adoption of vaccine passport requirements, and inventory constraints on sales.

In a separate report, Scotia noted that the soft end to Q3 represents a weak starting point for the fourth quarter, too.

“We’re going to need a strong holiday season to keep in the black for Q4 retail sales and there is no shortage of arguments around the risks in both directions,” the second report said.

Amid the latest data, the Bank of Canada will likely remain “guarded” next week, Scotia forecasted.

“I expect [the BoC] to shift to the reinvestment phase of the [quantitative easing] program next Wednesday, but for Governor Macklem to emphasize choppiness and ongoing slack in the economy while leaning—in nuanced fashion—against early hike pricing that I still think has gone too far,” the report said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.