Domestic Demand in Canada

Canada - Domestic Demand

GDP dips in July; preliminary estimate points to a strong increase in August

The economy dipped 0.1% month-on-month in July, after rising 0.6% in June. Economic activity rose 4.7% year-on-year in July, easing from June’s 7.7% increase, and predominately driven by a low base effect due to heightened restrictions to curb the spread of the virus in the same month last year.

In July, the services-producing industries increased at a softer pace due to weaker retail trade output. Moreover, the goods-producing industries declined at a quicker pace in July, driven by a sharp drop in the utilities and construction sub sectors.

Moreover, Statistics Canada released a special flash GDP estimate for August to provide a snapshot of the state of the economy. The preliminary figure pointed to a 0.7% increase in activity on a seasonally-adjusted month-on-month basis. Although a detailed breakdown was not released, the flash estimate attributed August’s increase to stronger retail trade, manufacturing, and accommodation and food output.

Commenting on the short-term outlook, Sri Thanabalasingam, senior economist at TD Economics, noted:

“So, it appears the Canadian economy ended the summer on a high note, but the fall season could lower the octave. Cooling weather and the resurgence of the pandemic (already occurring in Alberta and Saskatchewan) could dampen enthusiasm for recreational activities. At the same time, Canadians are likely to not redirect spending toward goods, an area which they had indulged during most of the pandemic. This could test the resilience of the economy in the months ahead.”            

FocusEconomics Consensus Forecast panelists see the economy growing 5.4% in 2021, which is up 0.7 percentage points from the previous month’s forecast, before growing 3.8% in 2022.