Canada’s Economy Flatlines in July

Sep 29 26, 13:42 GMT

Canadian GDP was unchanged in July (0.0% month-on-month, m/m), in line with Statistics Canada’s advanced estimate.
Half of industries registered growth. Overall, both goods and services industries were unchanged for the month.
On the goods side, improvements in the construction sector (+1.3% m/m) and utilities (+1.7%) were offset by declines in manufacturing (-0.9% m/m) and mining, quarrying, and oil and gas extraction (-0.5%). Notably, unplanned downtime at a southwestern Ontario refinery and production disruptions at a Saskatchewan mine were cited as factors weighing on activity.
Retail trade (-1.0% m/m) weighed on services sector activity as all subsectors except building material and garden equipment suppliers dealers contracted. Wholesale trade also pulled back by 0.4% m/m as weaker manufacturing activity dragged down the machinery, equipment and supplies subsector. There was some good news in the professional, scientific and technical services (+0.3% m/m) as more activity in the construction sector supported architectural, engineers and related services (+0.5% m/m). Increased international travel in July, likely related to the World Cup, also supported a 0.8% m/m increase in accommodation and food services.
The advanced estimate for August points to a 0.2% m/m gain. Rising activity in mining and quarrying and retail trade as expected to be offset by decreases in oil and gas extraction.

Key Implications

Canada’s economic activity sputtered at the start of the second half of the year. It is still early in the quarter, but given the advanced guidance, Q3 real GDP growth is tracking a solid 2% annualized–consistent with our expectation for a moderation in growth following a robust second quarter rebound. Renewed U.S.–Canada trade frictions and higher energy costs weigh will continue to weigh on household and business activity over the near-term.
This report alone is unlikely to materially alter the Bank of Canada’s outlook. Markets have recently turned more hawkish as persistent energy pressures raise the risk that inflation broadens, while higher U.S. policy rates and the spillover from rising global bond yields add to the tightening in Canadian financial conditions. Still, we think uneven domestic growth, a labour market that remains in recovery mode, and elevated uncertainty gives the Bank cover to remain on the sidelines for now.