The Canadian economy expanded by 0.1% month/month (m/m) in July, beating Statistics Canada’s flash estimate of -0.1%. The flash estimate for August was essentially flat.
July’s increase in activity was concentrated in the goods sector. The goods-producing sector rose 0.5%, while the service-producing sector declined by 0.1%. Overall, output expanding in 11 of the 20 industries.
Substantial growth was seen in the mining, quarrying and oil and gas sector, which grew at 1.9% on the month. This was a product of an “increase of synthetic oil production coupled with a record level of production of marketable crude bitumen in Alberta contributed the most to growth. Oil sands output increased following maintenance turnarounds at facilities in the second quarter of 2022, which constrained production leading up to July.”
The agriculture sector also rose at a substantial clip, increasing by 3.2% m/m. This was “driven by an increase in crop production. Crop production (except cannabis) expanded 7.2%, driven mainly by an increase in volumes of other grains and wheat.”
Retail trade (-1.9%) and accommodation/food services (-1%) were weak on the month, as consumers are starting to pull back on spending.
Key Implications
Today’s GDP release surprised to the upside, with the materials sectors taking the lead on the back of high commodity prices. Though there was noticeable weakness in some consumer-facing sectors, today’s print combined with the August forecast reaffirms our tracking for the third quarter of around 1%. That’s pretty good considering the backdrop of high inflation and rapidly rising interest rates that are weighing on the economy.
For the Bank of Canada, it needs to see further slowing in the economy in order to ease inflationary pressures. We have seen this already in recent labour market indicators, but GDP continues to remain in positive territory. How long this will last is uncertain, especially given our expectation that the BoC will get rates to 4% by year-end.
