The Canadian economy showed signs of malaise as the summer wound down, according to figures released this morning by Statistics Canada.
August Gross Domestic Product declined 0.1% in the month, much weaker than market expectations going into the release of a 0.2% increase. This decline followed an unrevised 0.2% increase in July.
Expectations going into the report were for growth continuing in August largely based on the earlier-released manufacturing sales report that showed a very strong 1.8% volumes increase in the month. In today’s GDP report, the manufacturing sector was reported to have slumped 0.6%. The difference in the growth in this sector can account for 0.3 percentage points of growth in the month. Activity in the petroleum and coal sectors was much weaker in today’s GDP report than was implied by the manufacturing sales report.
In terms of other sectors within goods-producing, output in the mining sector also declined in the month dropping 0.7%. Activity in the utilities was also weak dropping a sizable 0.8% though this followed a 1.8% surge in July. Construction activity moved lower as well, though by a relatively modest 0.1%. The only component of goods-producing to show an increase was agriculture where activity rose 0.7%.
Service-producing industries did not provide much offset as aggregate activity was flat in the month. Though wholesale trade activity rose a strong 1.0% most other components were flat to down led by a 0.5% drop in retail trade.
Experts at RBC Economics said the unexpected decline in August GDP points to quarterly Q3 GDP growth being halved relative to the 1.9% recorded in Q2.
"Formerly," according to the bank, "we were assuming that growth in the third quarter would likely hold steady relative to the previous quarter. These numbers are consistent with the Bank of Canada’s forecast released last week that projected a Q3 gain of 1.0%. Activity at this pace falls well short of a rate that can put downward pressure on the unemployment rate."
"Thus," Canada's biggest bank concludes, "the Bank of Canada is likely to keep monetary conditions highly accommodative maintaining the overnight rate at its current 1.00% until there are indications of growth strengthening to a rate that allows sustained improvements in labour markets."
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