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GDP Flat to Start the Third Quarter

Canadian Economics

By: Viktor Cicman

  • Real gross domestic product (GDP) was essentially unchanged in July, following a 0.2 per cent decline in June. Statistics Canada’s preliminary estimate indicates the economy grew by 0.1 per cent in August.
  • Oil and gas, extraction (except oil sands) posted growth of 2.4 per cent. This was the best among goods producing industries, as natural gas production ramped up in Western Canada.
  • The manufacturing sector saw the largest decline of all industries in July, falling by 1.5 per cent, its largest since April 2021. Weakness was observed in most subsectors, with plastics and rubber products and chemical manufacturing seeing notable weakness.
  • Accommodation and food services bounced back from the impacts of the wildfire in the previous month. The sector rose 2.3 per cent in July, leading to its largest growth rate since this January. Professional, scientific, and technical services, which has done relatively well post-pandemic saw a decrease of 0.2 per cent in. Computer systems design and related services and accounting, tax preparation, bookkeeping and payroll services contributed the most to the decline.
  • Transportation and warehousing was especially weak, contracting by 0.2 per cent in July, as 6 of 10 subsectors were down. Air transportation was the largest contributor to the sector’s decline in July, falling by 2.1 per cent. This was caused by bad weather in the eastern United States over the Canada Day long weekend. The B.C. port strikes also played a factor, as closure of more than 30 British Columbia ports impacted the amount of trade that could move by ships, leading water transportation output to fall by 3.4 per cent in July.

Insights

Today’s release of the industry GDP data indicates that the Canadian economy continues to slow. Following the decline in June and the second quarter as a whole, the economy continues to limp at the start of the third quarter. The impacts from decades high interest rates is naturally continuing to weigh on economic growth. While the slowing economy is helping to bring inflation closer to the 2 per cent Bank of Canada target, this month’s release of the Consumer Price Index showed inflation remains difficult to tame. This puts the Bank in a difficult situation as high interest rates are already impacting the economy as intended, but the Bank is having a more difficult time in driving inflation towards their target. It will be a tight line to walk for the Bank in the coming months, and many consumers and businesses will be nervously watching the upcoming rate decision. 

Looking to the south of border, the United States economy faces a few unexpected headwinds. Overall, the economy has been doing well despite rising interest rates. While consumer spending is slowing, the ‘soft landing’ the Federal Reserve has been hoping for looks may be within reach. However, a potential government shutdown, which has historically been averted, and strike action at the Big Three auto makers could take some wind out of the sails. Canada may also see negative impacts from the strikes. While strikes in the auto industry have seemingly been adverted here, a prolonged strike action by U.S. auto workers could have knock-on effects at parts suppliers. With tightly integrated supply chains between the two countries, Canada’s auto manufacturing sector will not go unscathed if the strike continues and expands to more plants.

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