Canada’s Economy Grows Third Straight Month on Oil Recovery

  • GDP expands 0.2% in August, matching consensus forecast
  • Need for interest-rate cut remains ‘very much an open debate’

Canada’s gross domestic product grew for a third month in August as Alberta oil production increased and hot weather in Ontario boosted demand for electricity.

Output advanced by 0.2 percent, Statistics Canada said Tuesday in Ottawa, matching the median forecast in a Bloomberg survey of economists. There were also gains in manufacturing, mining, construction and wholesale sales.

The world’s 10th largest economy appears to be shifting gears with sustained growth following a period of export weakness that almost led the Bank of Canada to cut interest rates in October. Governor Stephen Poloz said last month he backed off adding stimulus to see if recent signs of a rebound would be sustained.

Canada’s dollar strengthened for the first time in six days, advancing 0.3 percent to C$1.3375 per U.S. dollar at 9:42 a.m. Toronto time.

Oil, gas and mining production was the biggest contributor to growth in August, climbing a third straight month as capacity returned to normal after wildfires shut it down in May, Statistics Canada said. The industry’s 1.4 percent increase included a 1.1 percent rise in non-conventional oil and a 14 percent jump in potash output.

The August report was a rare instance of the “rotation” Poloz has sought away from debt-fueled consumer spending.

The value added by real-estate agents and brokers fell the fastest since January 2015 with a 3.2 percent decline that coincided with British Columbia’s imposition of a 15 percent tax on foreign home buyers. Retail sales also fell 0.2 percent on the month.

‘Trudging Along’

The August GDP gain follows a July expansion of 0.4 percent, putting the economy on track to match the Bank of Canada’s forecast for 3.2 percent annualized growth in the third quarter.

“We have been trudging along,” Doug Porter, chief economist at BMO Capital Markets in Toronto, said by telephone. “It’s still very much an open debate whether the Bank of Canada cuts again.”

This year has been rife with disappointments such as the second quarter contraction of 1.6 percent as oil production dropped. Growth will slow again to 1.5 percent in the fourth quarter, according to the central bank’s Monetary Policy Report.

Even with the 0.7 percent gain by goods-producing industries in August, that sector is still down by 0.9 percent from a year ago. The monthly result was boosted by a 2.4 percent gain at utilities companies feeding air conditioners during a heatwave in Ontario. Manufacturing production climbed 0.3 percent for a gain of just 0.4 percent over the last 12 months.

Poloz is also counting on a boost from fiscal stimulus, and Finance Minister Bill Morneau will offer an update later Tuesday on his plan to run a C$29 billion deficit this year. While slow growth may trigger extra spending and widen the deficit, Morneau has suggested he isn’t introducing special new spending.

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