Canada GDP Flat in July as Manufacturing Remains Weak — 2nd Update

Advance information suggests the economy eked out growth in August, which would mark a modest improvement after it flattened the month before as activity continued to be dampened by supply disruptions and borrowing costs continued to rise.

Gross domestic product, a broad measure of goods and services produced across the economy, was essentially unchanged in July from the month before at 2.082 trillion Canadian dollars, the equivalent of $1.544 trillion, Statistics Canada said Friday. Compared with a year earlier, GDP was 1.1% higher.

The pace of industry-level activity was in line with the data agency’s flash estimate for July but softer than the 0.1% growth expected by economists. It comes after GDP declined 0.2% in June.

Early data points to GDP in August edging up 0.1%. Although its estimates will be updated when the official data is released late next month, the agency said increases in wholesale trade and in the finance and insurance sectors were partly countered by declines in retail trade and oil and gas extraction sectors.

Economists estimate that if growth remains subdued in September, then the economy is tracking toward growth of under 0.5% on an annualized basis in the third quarter of the year, well below the 1.5% advance the Bank of Canada has projected in its most-recent monetary policy report and after a surprise 0.2% contraction in the second quarter.

The swings in monthly GDP in recent months in part reflect headwinds to capacity thrown up by forest fires across vast areas of Canada that affected a number of industries and strikes the held back the movement of goods through ports on Canada’s west coast. Still, a run of muted performance in the economy also should offer the Bank of Canada some comfort that past rate increases are working to dampen demand, economists say.

The central bank, which this month held its policy rate unchanged at a 22-year high of 5% following back-to-back quarter-point increase in June and July, has projected growth in GDP will slow as the lagged effect of its aggressive rate increases works through the economy, weighing on householder spending and business investment. Still, it has cautioned it is prepared to lift rates further given signs core inflation remains sticky. Headline consumer-price inflation unexpectedly accelerated in August.

“The bigger picture is that Canada is really struggling to grow right now,” said BMO Economics senior economist Robert Kavcic said, adding that while real GDP is little changed over the past six months it looks even weaker when considering the strong pace of population growth Canada is seeing.

He and other economists said that, while inflation remains well above the Bank of Canada’s target, the slowing economy should give the bank of Canada confidence that high interest rates are working and will continue to do so into next year, and should mean policymakers will be comfortable leaving interest rates steady when they next meet in late October.

Statistics Canada’s GDP report showed that output from goods-producing industries contracted in July, while services industries overall saw slight growth.

The manufacturing sector contracted for a second straight month, logging its largest decline since April 2021, largely thanks to a lower build-up of inventories. Non-durable manufacturing weakened for a third consecutive month, in part as the port strike in British Columbia disrupted chemical manufacturing, and durable manufacturing was down for a fourth time in five months.

Some industries affected by wildfires in June bounced back, with mining more than offsetting the previous month’s decline and accommodation and food services also seeing growth for July. Oil and gas extraction rose for a sixth time in the last seven months, driven in part by a ramp-up of natural gas output following a period of contraction with recent wildfires.

Write to Robb M. Stewart at [email protected]