Canadian economy slowing: Statistics Canada

Real gross domestic product (GDP) was essentially unchanged in July, following a 0.2% decline in June. Services-producing industries edged up 0.1% in the month, while goods-producing industries contracted 0.3%. Overall, 9 of 20 industrial sectors posted increases, reported Statistics Canada on Friday.

Mikhail Nilov

The federal agency said the manufacturing sector (-1.5%) had the largest negative contribution in July, its largest since April 2021. This was the second consecutive monthly contraction for the sector. The July 2023 decline largely stems from lower inventory formation.

“After experiencing declines in June due to forest fires, both mining and quarrying (except oil and gas) and accommodation and food services grew in July,” said StatsCan.

“Mining and quarrying (except oil and gas) increased 4.2% in July, more than offsetting June’s decline. Metal ore mining (+4.1%) and non-metallic mineral mining and quarrying (+7.1%) led the increase, whereas setbacks in coal mining (-2.3%) tempered growth. Metal ore mining growth was led by a 25.6% jump in the iron ore mining subsector as production increased following the impact of wildfires in June. Non-metallic mineral mining and quarrying was driven by an increase in potash mining.

“Accommodation and food services rose 2.3% in July with both subsectors increasing, leading to its largest growth rate since January 2023.”

The food services and drinking places subsector was the largest driver of growth in the accommodation and food services sector, rising 2.4% in July, which more than offset the decline recorded the previous month.

StatsCan said advance information indicates that real GDP edged up 0.1% in August. Increases in the wholesale trade and finance and insurance sectors were partly offset by decreases in the retail trade and oil and gas extraction sectors. Owing to its preliminary nature, these estimates will be updated on October 31, 2023, with the release of the official GDP by industry data for August, it said.

“While some disruptions have compromised the ‘cleanliness’ of recent GDP data, the bigger picture is that Canada is really struggling to grow right now. Real GDP is little changed over the past six months, which looks even weaker when considering that the population is exploding at a 3% per-year run rate. The Bank of Canada still has their eyes on stubborn core inflation and firm wage growth, but struggling growth argues for them to remain on hold and lean on the tightening that has already been put in place,” said Robert Kavcic, Senior Economist with BMO Economics.

Marc Ercolao, Economist with TD Economics, said with so many idiosyncratic shocks in Canada this year, it is challenging to distill where activity is trending in the economy.

“Quarterly GDP estimates to date have been impacted by a host of “special factors”, from the federal workers strike in April, wildfires affecting production in the oil patch in June, the BC port strikes in July, record-breaking wildfire activity, other weather events, and one-time government rebates. Most of the effects of these shocks have now dissipated, and barring any further one-off events, GDP growth should be more predictable over the coming months,” he said.

“With today’s print and August’s flash guidance, there is downside risk to our modest expectation for 1% growth in the third quarter, as published in our recent forecast. It is also considerably lower than the Bank of Canada’s (BoC) 1.5% estimate. Not surprisingly, today’s print ultimately tamped down the expectations for another rate hike in the coming month, with markets having lowered their probability of a hike at next meeting to 35%. The BoC must balance a slowing growth backdrop against renewed inflation pressures in August, especially across the BoC’s core measures. The BoC will need to remain vigilant and see more evidence of a cooling economy before they can get comfortable on the sidelines. Next week’s update to employment and wages combined with updates to September’s inflation figures next month will be the two key metrics on watch that will inform the BoC’s next policy decision on October 25th.”

Andrew Grantham, Senior Economist with CIBC Capital Markets, said the latest monthly GDP data suggested that the Canadian economy barely awoke from its Q2 slumber in the third quarter.

“July activity was flat on the month, which was in line with the advance estimate but slightly below the consensus forecast, while the early reading for August pointed to only slight growth of 0.1%.  The detail of July’s data showed rebounds in some of the areas that had been impacted most severely by early summer forest fires, including mining, oil & gas and accommodation & food service. However, this was offset by negatives from transportation and manufacturing which will at least partly be caused by the BC port strike. There was also further evidence of softening domestic demand, with retail once again a slight drag on July GDP. The only marginal growth shown in the advance estimate for August was a little weaker than we had previously pencilled in, and leaves Q3 GDP tracking just below 0.5%, assuming some growth in September as well,” he said.

“However, even though the GDP data were on the soft side, with supply disruptions related to wildfires and the port strike driving a large part of the recent swings, rather than necessarily strength/weakness in domestic demand, we suspect that upcoming employment and CPI data will be more important for the Bank of Canada heading into October’s rate decision.”

Mario Toneguzzi

Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)