“The GDP numbers should help to reinforce that interest rates are higher than they need to be to maintain inflation sustainably at a 2% rate,” Nathan Janzen, RBC assistant chief economist, said.

Canada’s economy expanded at a 1% annualized pace in the third quarter, the national statistics agency said Friday, broadly in line with consensus forecasts but below what policy makers at the central bank were expecting.

Government spending rose by an annualized 4.5%, accounting for 1.2 percentage points of GDP growth, meaning without it, Canada’s economy would have shrunk. Business investment declined by an annualized 11% from the second quarter. GDP per capita, a measure of a country’s standard of living and productivity, fell for a sixth consecutive quarter.

“The GDP numbers should help to reinforce that interest rates are higher than they need to be to maintain inflation sustainably at a 2% rate,” Nathan Janzen, RBC assistant chief economist, wrote in a research note. He said RBC’s base-case assumption is for another 50 basis point rate cut at the Bank of Canada’s next decision on Dec. 11.

Doug Porter, chief economist at BMO, sees a quarter point cut to rates. He called the third quarter GDP reading “meagre” and said monthly results for September and October “don’t point to a fast comeback.” He did note, however, that a large set of upward revisions to prior GDP numbers means BMO is lifting its estimate of 2024 full-year growth to 1.3%.

Porter noted corporate profits tumbled at an annualized rate of 41%, and the personal savings rate rose to a three-year high of 7.1%. At the same time, consumer spending was sharply higher, rising 3.5% on the quarter and 2.2% on the year.

Andrew Grantham, CIBC senior economist, says as a result of the September and October GDP number, early tracking for the fourth quarter is around 1% annualized, which will fall short of the central bank’s 2% projection. The data suggest the Bank of Canada “may need to downgrade its GDP projections again and that the output gap is continuing to widen,” Grantham said, adding that the numbers somewhat support a 50 basis point cut in December.

Friday’s GDP reading compared with 2.2% growth in the second quarter, which was revised up from 2.1% previously. GDP per capita, a measure of a country’s standard of living and productivity, fell for a sixth consecutive quarter.

The last major data release before the central bank’s next rate decision is the Labour Force Survey, scheduled for Dec. 6.