Economy snaps back, may miss central bank’s forecast

The Canadian economy bounced back in July from the Alberta floods and Quebec construction strike, growing 0.6 per cent in the month.

But at least one economist said it will now take "a miracle" to reach the Bank of Canada's forecast of 3.8 per cent annual growth for the entire third quarter.

National Bank of Canada economist Krishen Rangasamy said the economy would have to grow at least 0.6 per cent in both August and September. And that's improbable given the challenges facing the economy, including the U.S. budget stalemate, he said.

Mr. Rangasamy expects the economy to grow at annual pace of two per cent in the quarter – not enough to get the central bank thinking of raising its key interest rate for some time. Other economists agree.

"The bigger story here is that underlying growth is still just quietly grinding along at a modest pace. . . not enough to meaningfully reduce the jobless rate or to quicken the pulse of the Bank of Canada," Bank of Montreal chief economist Douglas Porter said in a research note.

"The entire quarter is likely to come in well shy of [the Bank of Canada's] initial expectations."

Instead, most economists are looking for growth in the 2 to 3 per cent range in the third quarter, compared to 1.7 per cent in the second quarter and 2.2 per cent in the first quarter.

In July, monthly GDP growth of 0.6 per cent was led by construction, resource industries, wholesale and retail trade as well as finance and insurance, Statistics Canada reported Monday.

That more than reversed a 0.5 per cent contraction in June, when severe flooding in Alberta and the Quebec construction strike took a bite out of the economy.

Construction activity expanded 1.9 per cent in July, paced largely by the non-residential sector – evidence of the pent up demand in Quebec and Alberta.