Canada: Q4 GDP likely to print at 2.0% - TDS

Analysts at TDS expect Canada’s Q4 GDP to print at 2.0% (q/q SAAR), only a touch higher than trend and confirming the softening in demand from 17H1 to 17H2.

Key Quotes

“Consumer spending will remain in the driver's seat of growth but the deceleration is clear, especially in services where we expect growth to slow to 3.6% in Q4 from 5.3% in Q3. We expect total private investment growth to improve 2.5% from 1.6% in Q3, supported by business investment and a rebound in the residential component as investors pull-forward activity ahead of January's B-20 underwriting guideline changes. Finally, we expect the contribution from government to decline on a moderation of fixed capital investment.”

“Industry-level growth is forecast to rise 0.1% in December. Following a number of downbeat data releases, we expect utilities and a short-term boost from real estate to drive growth. Details should reveal a mixed performance in both goods and services, with the former helped by increased utilities output while a pullback in housing starts and softer manufacturing sales will exert a drag on growth. For services, weaker wholesale and retail sales will weigh on the sector as a whole but we expect a larger contribution from real estate as homebuyers try to circumvent new mortgage rules, though this will unwind next month. In addition to the slowdown in housing, the poor handoff from December will create a more challenging growth environment in Q1.”

“FX: The loonie comes into a pivotal GDP release lagging on both price action and data momentum against its G10 peers. To arrest the decline, we think it needs a solid upside print given that BoC pricing for the remainder of the year is still quite aggressive. The consensus of forecasters shows a wide variation of views, increasing the twoways on a number that deviates from it. The average sits above the median so there is a bit of tilt towards a good number, though it is marginal. From a broader perspective, this print should be taken in context with the soggy performance in data surprise momentum. Our gauge of momentum sits in the lower quartile of the G10 coming in second last behind SEK. That means that the loonie likely needs a solid upside print to push against the negative forces that have been tugging it lower. In turn, we hold our negative bias towards CAD, especially as the dollar is pulling itself from the doldrums and US data momentum looks relatively upbeat. That leaves us buying into dips, with eyes towards a retest of the recent highs near 1.2920 and firm sellers of CADJPY rallies back towards 85.”