05:00 PM EDT, 10/08/2024 (MT Newswires) -- Scotiabank said Tuesday its outlook for Canadian new light vehicle sales is 1.78 million in 2024, and 1.8 million in 2025 as interest rate headwinds ease, even as it noted demand slowed in the third quarter.

In its latest 'Global Auto Report' Scotia noted Canadian auto sales fell 1.3% month over month (m/m) to 1.72 million units at a seasonally adjusted annualized rate (SAAR) in September, declining in four of the last five months according to Wards Automotive.

While light vehicle sales through the first nine months of the year are up 7.1% year to date, Scotia said momentum continues to slow in the second half of the year. Third quarter sales in seasonally adjusted terms averaged 1.74 million units, down 2.0% from Q2-2024. Meanwhile, Q3 non-seasonally adjusted sales were up 2% compared to same quarter a year ago.

However sales in September were down 2.7% year over year -- contracting from the prior year the first time since December 2022. "As the tightening effect from previous interest rate hikes continued to weigh on household consumption of goods into the summer, so too has it weighed on demand for automotives and new vehicle sales," Scotia added.

Scotia noted annual headline inflation fell to 2% year over year in August, the mid-point of the Bank of Canada's 1% to 3% target range, reinforcing calls for further cuts to the policy rate which has been lowered to 4.25% as of September from the recent peak of 5% at the beginning of June. Scotia said should inflation sustainably remain below the 3% upper threshold, it expects more cuts to the policy rate at the two remaining BoC policy rate meetings in 2024 and into mid-2025. "It," the bank added, "remains to be seen how quickly easing in monetary policy conditions will reduce affordability constraints and pass through to vehicle sales."