Yahoo Finance Canada's GDP flat in July, despite population 'exploding'
Canada's economy saw no growth in July and is on track to eke out a slight gain in August, Statistics Canada said on Friday, a further sign that the economy is slowing in the wake of the Bank of Canada's interest rate hikes.
The July reading is slightly less than the 0.1 per cent increase analysts had forecast, according to a Reuters survey. Preliminary estimates indicate that GDP eked out a gain of 0.1 per cent in August, with increases in the wholesale trade, finance and insurance sectors partly offsetting decreases in the retail, and oil and gas industries.
Assuming September growth is flat, GDP in the third quarter is on pace to increase 0.2 per cent, according to Desjardins, well below the Bank of Canada's forecast of 1.5 per cent published in its July Monetary Policy Report.
"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 cent per-year run rate," BMO senior economist Robert Kavcic wrote in a note on Friday. He added that while the Bank of Canada will be closely monitoring core inflation and firm wage growth ahead of its next decision in October, "struggling growth argues for them to remain on hold and lean on the tightening that has already been put in place."
The Canadian economy's stall follows the Bank of Canada's aggressive tightening campaign, in which it hiked its benchmark interest rate 10 times since March, to tame soaring inflation.
Canada's inflation rate accelerated for the second month in a row in August, raising the odds of another Bank of Canada rate hike. But softer economic growth could keep the central bank on the sidelines when it issues its next interest rate decision in October.
"The economic data in Canada continue to paint a picture of an economy that has stalled," Royce Mendes, Desjardins' managing director and head of macro strategy, wrote in a note after the data release.
"While inflationary pressures remain sticky above the Bank of Canada’s target range, the slowing in the economy should give central bankers confidence that (their) medicine is slowly working."
The July data showed that service-producing edged 0.1 per cent, while goods-producing sectors contracted 0.3 per cent.
The manufacturing sector posted the largest negative contribution in July, contracting 1.5 per cent, marking the largest monthly decline since April 2021. This was due in part to the B.C. port strike, which impacted the chemical manufacturing the most as it contracted 3.6 per cent.
At the same time, some sectors rebounded in July after disruptions in June due to wildfires across the country. Mining (except oil and gas) increased 4.2 per cent in July, while accommodation and food services grew 2.3 per cent.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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