Canada’s Economy Sputters in August

Oct 30 26, 13:13 GMT

Canadian GDP flatlined for a second straight month in August, undershooting Statistics Canada’s advanced estimate of a 0.2% month-on-month (m/m) gain. Nine of 20 industries registered growth in August.
On the goods side, GDP edged higher by 0.1% m/m. A solid gain in machinery manufacturing and petroleum refiners pushed the manufacturing sector 0.3% m/m higher. The construction sector (+0.2% m/m) also contributed to the gain. Maintenance at several nuclear powerplants dragged the utilities sector 0.4% m/m lower, weighing on the goods-side of the economy.
Meanwhile, services-producing industries fell by a modest 0.1% m/m. Weakness in motor vehicles and parts wholesalers pulled the wholesale sector down 1.4% m/m, the largest contributor to growth. Other sectors like public administration (-0.8% m/m) and information and culture (-0.4% m/m) also weighed on services growth. Providing some offset was broad-based strength across retail trade subsectors (+1.2% m/m).
The advanced estimate for September points to a 0.1% m/m real GDP decline. Decreases in manufacturing and mining, quarrying and oil and gas extraction were partially offset by increases in utilities and wholesale trade.

Key Implications

This was a disappointing report relative to expectations and, more importantly, Statistics Canada’s guidance for September looks no better. Taken together, that leaves real GDP growth in the third quarter tracking around 1.3% annualized–still positive, but notably below the Bank of Canada’s recent projection.
For the Bank of Canada, today’s report may cast a little more doubt around the durability of the recovery heading into 2027. The Bank’s latest outlook anticipates a meaningful strengthening in growth next year, but signs of softer momentum heading into Q4 raise the bar for that forecast, particularly with trade uncertainty and higher energy costs still clouding the outlook. While the Bank remains focused on upside inflation risks following this week’s rate hike, weaker underlying growth could complicate the case for further tightening in the near-term.