The Canadian economy posted flat growth in August, Statistics Canada said Thursday, but there were signs of a rebound stirring in September.
Economists reacting to the news said the “soft” print for real gross domestic product supports calls for another oversized rate cut from the Bank of Canada, but cautioned there’s plenty of data to come before the central bank’s next decision in December.
Goods-producing industries saw their sharpest drop since December 2021 as manufacturing and utilities sectors contracted in the month. Some growth in services, particularly in the finance and insurance and the public administration sectors, offset the drop, StatCan said.
Lockouts in August from CN Rail and Canadian Pacific Kansas City also drove down the transportation and warehousing industry. That followed another sharp downturn in July as Jasper wildfires disrupted national transportation networks.
Overall, 12 of the 20 sectors tracked by StatCan expanded in August.
The agency’s early look at the month of September meanwhile projects a bounceback with 0.3 per cent monthly growth in real GDP. These advance estimates will be revised when the final figures for the month and the third quarter are released at the end of November.
The Bank of Canada, which last week delivered an oversized 50-basis-point cut to its benchmark interest rate, has increasingly focused on the health of the economy as it crafts monetary policy, now that inflation has cooled back to its two per cent target.
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Based on early readings for September, the third quarter is tracking for annualized real GDP growth of 1.0 per cent. That’s below the Bank of Canada’s calls for 1.5 per cent growth in the quarter, which was already revised down from July’s expectations of 2.8 per cent.
'Soft' August GDP consistent with steeper rate cuts: economists
The central bank’s final rate decision of the year is set for Dec. 11, and monetary policymakers will have a more fulsome look at real GDP growth in the third quarter before that meeting. While a fifth consecutive interest rate cut is widely expected, it remains to be seen whether the Bank delivers another oversized step or returns to the more typical 25-basis-point cuts.
CIBC senior economist Andrew Grantham said in a note to clients Thursday morning that the August figures support his call for a second half-point cut come December in an effort to jumpstart the economy.
“With growth once again appearing to fall short of their already downgraded forecast, we continue to forecast that policymakers will deliver another 50bp cut at the December meeting,” he said.
BMO chief economist Doug Porter acknowledged that the August GDP print tilts in favour of steeper rate cuts, but said the matter is far from settled with the outstanding third quarter results and additional inflation and jobs data releases still to come before the central bank has to make a decision.
“This less-than-scary reading hardly settles the debate over the next move,” he said in a note.
But RBC economist Claire Fan argued in a note that the narrative in the Canadian economy remains the same: weak growth and a need for more stimulus from lower interest rates.
“Soft GDP growth is reinforcing that inflation is more likely to drift (broadly) lower rather than higher,” she wrote. That’s consistent with RBC’s call for another 50-basis-point cut in December.
Money markets increased bets for another 50-basis-point rate cut in December to more than a 25 per cent probability from roughly 18 per cent before the release of the GDP data, according to Reuters.
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