Canadian GDP Report Fuels Speculation of a Rate Cut

Growth in the Canadian economy slowed in the fourth quarter of 2007 to 0.79% at an annual rate, the slowest rate of increase since the second quarter of 2003 as can be seen in the first chart. For the year as a whole, GDP increased 2.65% compared with 2.76% in 2006.

In addition to the traditional quarterly series of GDP, Canada also maintains a monthly series that is less comprehensive than the quarterly series. The two series are compared in the second chart. The monthly series has been aggregated to a quarterly basis for comparison.

The monthly series shows that the rate of growth deteriorated sharply in the months of the final quarter. GDP in December was .67% below November, as can be seen in the third chart.

The strength of the Canadian dollar which has affected exports adversely and has encouraged imports has accounted for some of the slow down in the Canadian economy. Last Friday, Canada announced a deficit on its current account of $513 million Canadian, the first since the second quarter of 1999.

As a result of the slow growth, there is growing speculation that when the central bank meets tomorrow it will lower its target rate of 4%. The target interest rate of Canada is shown in the fourth chart with that of the United States.