By Akhil Shah

OTTAWA (MNI) – Monday’s GDP report is expected to show Canadian
economic growth was at an anemic 1.5% annual rate in the third quarter.

The main reason for Canadian growth continuing at such a sluggish
pace comes from the drag caused by the country’s continuing trade
deficit, analysts said.

Economists interviewed by Market News International centered
their projections on 1.5% for third-quarter GDP at an annual rate and on
just a tenth improvement in September over August, when it was up 0.3%.

From soaring economic resurgence in the last quarter of 2009
(+5.0%) and the first quarter of this year (+5.8%), a much slower pace
of growth followed in the second quarter (+2.0%).

Spending restraint by consumers who had led the earlier resurgence
may support the expectations for deceleration. Consumer spending had
been the key supporting force in the economy during the 2008-2009
recession.

But for now, households may be indicating intentions to spend less.
A consumer confidence survey, conducted by The Conference Board of
Canada to understand consumer views about their households’ current and
expected financial positions and the short-term employment outlook,
showed the index fell 2.3% from July to September.

Fergal Smith, Managing Market Strategist at Action Economics,
expects quarter-on-quarter GDP to slow down to a 1.4% pace on an
annualized basis. “We project a modest 0.1% advance for September’s
statistic, ” Smith said.

“On the quarter, trade will be the main drag, and the statistic
will be boosted by a solid but not spectacular 3.0% acceleration in
personal consumption levels,” Smith added.

“We expect another strong quarter from the machinery and equipment
sector which should help business investments,” Smith said. “The data we
are going to see will be early signs of slowdown in growth, which the
Bank of Canada has been anticipating.”

“For the monthly statistic, we expect retail and wholesale sales to
raise service producing sectors’ output while the manufacturing sector
will weigh down growth in the goods producing industries,” Smith said.

Krishen Rangasamy, economist at the Canadian Imperial Bank Of
Commerce, predicts growth will remain flat in September as “factories
did rather poorly on the month.” For the quarter, GDP is expected to
slow to a 1.6% pace on an annualized basis.

In quarterly terms, “personal consumption is expected to be
stronger than in the second quarter and we also see some positive
contribution coming from the investment sector as well,” Rangasamy said.
“The durables good sector will be expected to rebound from previous lows
and push personal consumption up.”

“Trade will definitely be a drag for the statistic as exports were
down in volume terms for the quarter,” Rangasamy added. This will
continue to reflect the strengthening Canadian dollar.

Rangasamy added, “We have residential investment dipping as
housing starts did not do well for the third quarter and should
definitely see it hold back residential investment, but overall business
investment will be up as machinery and equipment is expected to post
gains once again.”

In September, “the manufacturing sector will restrain growth in the
goods producing sector as billed shipments were down in September,”
Rangasamy said. On the other hand “the services sector could do a little
bit better led by gains in retail, wholesale and education sectors.”

The current C$2.5 billion trade deficit along with slowing growth
will confirm markets’ expectation that the Bank of Canada will be kept
on the sidelines with regards to interest rate policy, despite the
economy being on the path to recovery, analysts said.

–Akhil Shah is a Need to Know News Reporter in Ottawa

** Market News International Ottawa **

[TOPICS: MAUDS$,M$C$$$]