Canada: GDP growth slows in August as recovery loses steam
The economy grew 1.2% month-on-month in August, easing from July’s 3.1% increase, although marginally beating Statistics Canada’s preliminary estimate of 1.0% made back on 30 September. The economy shrank 3.8% year-on-year in August, which was softer than July’s 4.9% drop.
In August, growth in the goods-producing industries continued to ease, particularly due to softer manufacturing activity and a contraction in the mining and quarrying, and oil and extraction sectors. That said, growth in the construction sector accelerated. In terms of service-producing industries, the wholesale and retail trade sector increased, albeit at a noticeably softer pace relative to the previous month.
Moreover, Statistics Canada also released a special flash GDP estimate for September and the whole of the third quarter to provide a snapshot of the state of the economy. In September, the preliminary figure pointed to a 0.7% increase in activity on a month-on-month seasonally-adjusted basis, which puts overall GDP growth at 46.4% on a seasonally-adjusted annualized basis for the third quarter (Q2: -38.7% SAAR). Although a detailed breakdown was not released, the flash estimate attributed September’s growth to the manufacturing, mining and quarrying, and oil and gas sectors.
In 2021, the economy is expected to rebound robustly as the impact of Covid-19 and subsequent lockdown measures fades. Moreover, strong fiscal and monetary stimulus, coupled with a healthier labor market, should propel domestic demand. Nevertheless, uncertainty around the evolution of the pandemic and the timing and distribution of a Covid-19 vaccine remains a key downside risk to the outlook.
Commenting on August’s GDP reading, Sri Thanabalasingam, a senior economist at TD Economics, noted:
“Canada’s economic recovery is losing steam. After quickly recouping 75% of the output lost during March and April, the economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output.”