The Canadian economy scratched out a small gain in August, further evidence that its burst of strength earlier in the year has given way to much more modest growth in the face of mounting global economic pressures.
Statistics Canada reported Thursday that Canada’s real gross domestic product inched ahead 0.1 per cent in August from July. That was a touch less than the 0.2 per cent that most economists had expected, yet still a return to growth after a flat result in July.
Canada’s economy, like those of other advanced countries, has come under increased pressure in recent months from the fallout from the U.S.-China trade war, as global trade flows, manufacturing orders and business investment have all slumped amid a pervasive mood of uncertainty. Canadian growth has come back to earth after surging at a 3.7-per-cent annualized rate in the second quarter – a spurt that now looks to have been an aberration in a year otherwise marked by sluggishness. Total growth in the past three months has been less than 0.3 per cent – or an annualized pace of a tame 1.1 per cent.
Nevertheless, economists noted that August’s gains, though slim, were relatively broad-based, with 14 out of 20 sectors growing in the month. The manufacturing sector, which had contracted in three of the previous four months, was a leading source of strength in the August data, up 0.5 per cent from July. The financial sector (up 0.5 per cent), construction (up 0.3 per cent) and retail (up 0.3 per cent) also provided solid contributions.
The main source of weakness was wholesale trade, which slumped 1.3 per cent month over month. The decline was partly due to a slump among machinery and equipment wholesalers – a sign of the weakening business investment climate. Statscan also noted that oil and gas extraction was dogged by maintenance shutdowns at Alberta oil sands facilities and temporary production disruptions offshore Newfoundland and Labrador, which resulted in a 1.6-per-cent decline in extraction for August, the third decline in four months.
“A slightly soft [overall August growth number] masked decent strength,” said Toronto-Dominion Bank senior economist Brian DePratto in a research note. “Aside from the bad wholesale numbers, there was a fair bit to like here.”
The GDP report comes one day after the Bank of Canada issued its quarterly economic projections, lowering its third-quarter growth estimate to 1.3 per cent annualized from 1.5 per cent, and forecasting a similar 1.3-per-cent pace for the fourth quarter. Economists said the August GDP figures were largely consistent with the Bank of Canada’s revised outlook and its view of a cooler environment for economic growth in the coming months.
“[Growth] is being pulled down in the second half of 2019 by an outright decline in exports and business investment,” the central bank said in its quarterly Monetary Policy Report, released Wednesday, as the bank announced its decision to hold its key interest rate steady at 1.75 per cent. “In contrast, employment and wage gains have been and are expected to remain resilient, supported by robust activity in the service sector.”