Highlights:

  • Canadian GDP held steady in July, failing to increase for the first time in 9 months.
  • Goods-producing industries fell 0.5% – led by a pull-back in non-conventional oil extraction. Services output increased 0.2%.
  • The strong run of earlier increases left GDP still up 3.8% from a year ago in July, reflecting broadly based increases across goods & services sectors of the economy.

Our Take:

Canada’s 8-month long streak of monthly GDP growth finally came to an end in July with GDP holding steady at June’s level. Most of the July weakness was in goods production with non-conventional oil production pulling back for a second straight month after a surge in output in May and manufacturing output inching lower. Services output rose another 0.2% in July despite a 0.6% drop in finance and insurance output that Statistics Canada noted may have been impacted by the timing of U.S. and Canadian holidays in July. The (unusually) long streak of increases over the prior year means that GDP was still up a solid 3.8% year-over-year in July, reflecting broadly-based gains across goods & services sectors.

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More broadly, the slowing in GDP growth in July is consistent with our – and the Bank of Canada’s – view that the recent outsized pace of growth over the last year won’t be sustained going forward. That said, there is also a lot of room for growth to slow from the 3.7% average increase over the last four quarters and still be at an ‘above-potential’ pace. The July GDP increase was slightly below what we were expecting but at this point not enough to change our call that GDP will increase another solid 2.5% in Q3. Worries about the stronger dollar, the potential outcome of ongoing NAFTA renegotiations, and still below-target inflation readings will likely keep monetary policymakers cautious. We expect, though, the economy will continue to grow at a pace that will warrant further gradual rate hikes from the Bank of Canada.

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