July Gross Domestic Product in Canada rose 0.2% building further onto a 0.1% gain in June, according to figures released this morning by Statistics Canada. Though the increase in the more recent month was stronger than the 0.1% expected going into the report, the gain in June represented a downward revision from a previously-estimated 0.2%.
The overall increase in July reflected similar-sized 0.2% increases in both goods-producing and service-producing industries. The increase in goods-producing industries reflected strong gains in both utilities (2.0%) and manufacturing (0.6%). The increase in the former resulted from strong demand for air-conditioning in the face of the hotter-than-usual summer weather. The increase in manufacturing was unexpected in the wake of the earlier reported decline in manufacturing sales in the month.
The mining component continued to decline though by a moderate 0.3%. With anecdotal reports suggesting that various oil upgraders came back into production in the third quarter after maintenance shutdowns during Q2, we are assuming greater strength in this component going forward. Agriculture activity was relatively flat (-0.1%) in July after four months of strong gains averaging of 0.9%. In contrast to drought conditions in the U.S., more favourable growing conditions in the Canadian prairies are pointing to strong gains in grain production.
The rise in service-producing industries reflected relatively broad-based gains that included retail trade (0.6%), accommodation and food services (0.5%) and finance, insurance and real estate (0.3%).
RBC Economics experts state that indications that growth in July strengthened further relative to the 0.1% gain recorded in June augur well for the economy to continue to expand in the third quarter. However, this data is consistent with a pace of growth that is little changed from the close to 2% achieved over the first half of this year. Such is likely to put limited if any downward pressure on the unemployment rate and argues for monetary policy to remain highly accommodative to support a strengthening in economic activity and greater improvement in labour markets.
They also say that the economy is operating with limited slack and as the risks to the global outlook abate, the need for exceptionally low interest rates in Canada will diminish.
"To that end, our forecast assumes that the overnight rate will remain unchanged at 1.00% into the second quarter of 2013 at which time the Bank is likely to begin to gradually reduce the amount of stimulus being applied to the economy."
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