Growth data from Canada was released on Friday. Industry-level GDP disappointed in August with the 0.4% print coming in well below the market consensus for 0.7%, explained analysts at RBC Capital Markets. They don’t expect the report to derail the Bank of Canada’s hawkishness.

Key Quotes: 

“The economic recovery hit another snag in August with industry-level GDP rising by 0.4% m/m. In isolation, this would be considered a relatively robust print but markets had been expecting something considerably stronger (+0.7%), and flash estimates for September adding to the disappointment with Statistics Canada projecting a flat print.”

“With the flat flash estimate for September, Statistics Canada is projecting an unannualized gain of 0.5% for Q3 GDP (so call it roughly 2.0% annualized). We had been looking for Q3 growth in the mid-to-low 3s, while the BoC had forecast Q3 growth at 5.5% in its most recent MPR. Following today's report, we now look for 2021 GDP growth of about 4.7%, compared to the BoC's forecast of 5.1% growth.” 

“The softer print on Q3 shouldn't derail the BoC's newfound hawkishness — the Bank's flexible treatment of the output gap still leaves April as the most likely point for lift-off. But nor do we want to give the impression that economic data is totally irrelevant here. If the economy fails to rebound in Q4 the Bank's shift in forward guidance may start to look ill-advised.”