The Canadian economy grew by 0.2% month-on-month (m/m) in July after June’s flat reading. This print landed ahead of Statistics Canada’s advanced guidance and consensus expectations. Early guidance from Statistics Canada points to no growth in August.
May’s reading was broad-based, with output expanding in 13 of 20 industries. Growth in services-producing industries (0.2% m/m) advanced at a slightly faster pace than in goods-producing industries (0.1% m/m).
On a weighted basis, the retail trade sector contributed most to the overall gain in July’s GDP, and was up for a second consecutive month (+1.0% m/m). Elsewhere on the services side, gains in the finance and insurance industry (+0.5% m/m) and the public administration sector (+0.4% m/m) were offset partially by a drag in the transportation sector (-0.4% m/m) that were impacted by wildfires.
On the goods side, utilities (+1.3% m/m) did most of the heavy lifting on the back of increased demand for electricity. Meanwhile, the manufacturing sector reversed some of last month’s slide and the construction sector slumped for a third straight month, down 0.4% m/m.
Behind the advanced reading of stalled growth in August is an increase in oil & gas and public sector activity offset by pullbacks in the manufacturing and transportation & warehousing sectors.
Key Implications
GDP data for July came in stronger than expectations, but the momentum should be short-lived. With the current guidance for flat industry-GDP growth next month, third quarter GDP is tracking just north of 1.0% quarter-on-quarter (q/q) annualized, significantly below the Bank of Canada’s (BoC) 2.8% forecast, but broadly in line with our recent forecast update.
The BoC next rate decision is in late October and more cuts are certainly on the table. The BoC has shifted their tone as of late, putting more emphasis on their fears around a weakening economy. For what it’s worth, we don’t think today’s data tips the scales any more-or-less in favour of a potential 50 basis point (bps) interest rate cut, which would follow the recent move from the Federal Reserve. Instead, more emphasis will be placed on upcoming labour market data as well as inflation data, where the Bank will be looking for signs that price growth can remain durably at 2%.
 annualized, significantly below the Bank of Canada's (BoC) 2.8% forecast, but broadly in line with our recent forecast update.){kind=link}