Canadian economy unchanged for 2nd consecutive month: Statistics Canada

Real gross domestic product (GDP) was essentially unchanged for a second consecutive month in August as factors such as higher interest rates, inflation, forest fires and drought conditions continued to weigh on the economy. Services-producing industries edged up 0.1% in the month, while goods-producing industries contracted 0.2%. Overall, 8 of 20 industrial sectors increased, reported Statistics Canada on Tuesday.

Pavel Danilyuk

The federal agency said the oil and gas extraction subsector rose 1.0% in August, up for the seventh time in the last eight months, bringing activity to its highest level since April 2019.

“Oil and gas extraction (except oil sands) led the growth with a 1.3% expansion as both higher natural gas and higher crude oil extractions in Western Canada contributed to the increase. Gains in June, July and August more than offset the sharp decline in May attributed in large part to the impact of forest fires on natural gas extraction in Alberta,” it said.

“Mining and quarrying (except oil and gas) increased 4.2% in August, led by an increase in copper, nickel, lead and zinc, which rebounded from a large decline in July that resulted in large part from maintenance activity.

“The manufacturing sector contracted 0.6% in August, as both non-durable goods and durable goods manufacturing contributed to the decrease for a third month in a row.”

StatsCan said advance information indicates that real GDP by industry was essentially unchanged in September. Decreases in mining, quarrying, and oil and gas extraction and utilities were partially offset by increases in the construction and public sectors. Owing to its preliminary nature, these estimates will be updated on November 30, 2023, with the release of the official GDP by industry data for September.

With this advance estimate for September, information on real GDP by industry suggests that the third quarter of 2023 was essentially unchanged. The official estimate for the third quarter will be available on November 30, 2023, when the official estimate of real GDP by income and expenditure is released.

“The Canadian economy is already skirting a recession, with preliminary industry data for Q3 suggesting the possibility of a further slight contraction in activity to follow Q2’s surprise decline. Monthly GDP for August showed no change compared to the prior month, which was weaker than the advance estimate and consensus forecast for a 0.1% increase. Gains in areas such as wholesale and mining, oil & gas (which were rebounding from the port strike and wildfire disruptions) were broadly offset by declines in sectors such as manufacturing, retail and accommodation & food service,” said Andrew Grantham, Senior Economist, CIBC Capital Markets.

“The advance estimate for September showed continued stagnation, with activity broadly unchanged relative to the prior month. For Q3 as a whole, GDP was also essentially unchanged. That’s much weaker than the Bank of Canada’s MPR forecast of 0.8% annualized growth, although it should be noted that there is often a discrepancy between the industry figures released today and the later expenditure data. Still, the fact that the economy appears close to tipping into a mild recession already clearly reduces the likelihood of any further interest rate hikes, and will likely see financial markets pulling forward expectations for rate cuts which will weigh on the Canadian dollar.”

Benjamin Reitzes, Managing Director, BMO Economics, said: “This is yet one more crystal clear sign that the Bank of Canada should be done hiking. The potential for a second consecutive negative quarterly GDP reading will cause recession chatter to ramp up quickly. The soft economic backdrop, which still has downside, will drive inflation down over time…it’s just a question of how quickly.”

Marc Ercolao, Economist with TD Economics, said “essentially flat” is the theme for the third quarter, as growth in July, August and September are hovering around the zero growth line.

“Taken altogether, this presents a modest downside risk to the Bank of Canada’s recently revised 0.8% annualized growth forecast for the third quarter this year,” he said.”Higher interest rates are certainly doing their part to tamp down excess demand, and we continue to expect below-trend growth for the next couple of quarters. After holding the policy rate at 5.00% last week, the Bank of Canada (BoC) should feel confident that their rate hikes are working to pull the economy back into balance. That said, they have voiced their need to remain vigilant, especially as core inflation remains at uncomfortable levels. Employment and wages data later this week will be on watch, as this segment of the economy continues to show relative strength.”