Canada: Economic activity growth remains broadly unchanged in August

GDP growth was stable at 0.1% in month-on-month seasonally-adjusted terms in August. Looking at the details of the release, the agricultural sector grew at a faster pace, while the services sector moved back to expansion. In contrast, the mining sector dipped into contraction and the manufacturing sector shrank at a faster pace. Notably, the construction output fell for the fifth month running—providing further evidence that the Bank of Canada’s rate hikes are having a chilling effect on the housing market.

On an annual basis, monthly GDP rose at a softer pace of 4.0% in August (July: +4.4% yoy), the worst result since March.

A flash reading for September estimated growth at 0.1% mom s.a. Upturns in the oil and gas sector; manufacturing sector; and public sector were partially offset by declines in the construction sector. This puts the quarter-on-quarter expansion at 0.4% for Q3 as a whole—around 1.6% in SAAR terms. The quarterly figure shows activity was resilient in the face of high inflation and tighter financial conditions.

TD Economics’ James Orlando commented on the outlook:

“Though today's data release was encouraging, the overarching narrative of a decelerating Canadian economy hasn't changed. Given high inflation and the lagged impact of higher interest rates, we are seeing the effect of this in the goods sector and expect to see the same in the service side going forward.”

FocusEconomics analysts project growth of 1.0% in 2023, which is down 0.4 percentage points from last month. In 2024, our analysts see growth at 1.8%.