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Canadian Growth Spurt Stalls With GDP Unchanged in July

Updated on
  • Slowing housing market was among the biggest drags on economy
  • Motor vehicle manufacturing was down 13.5 percent in July

Canada’s economy showed signs of cooling in July, in line with expectations the nation’s expansion would return to more sustainable levels after recording some of the fastest growth in decades.

Gross domestic product was little changed from the prior month, Statistics Canada said Friday from Ottawa, ending an eight-month string of gains. Economists had forecast a 0.1 percent increase, according to a Bloomberg survey. Slumping oil and automobile production and a slowing housing market were among the biggest drags on growth.

Over the past year, Canada’s economy has been running at a pace rarely seen in the past couple of decades, with growth coming in at an annualized 4.5 percent in the second quarter. The above-potential growth has been soaking up excess capacity in the economy, prompting the central bank to raise interest rates twice since July.

“We suspect that the slower start to the third quarter gives us the flavor of things to come, with our forecast for the back half of the year tracking half the pace seen at the start of 2017,” Nick Exarhos, an economist in Toronto at Canadian Imperial Bank of Commerce, said in a note. “That’s another reason why we see the Bank of Canada using a more gentle hand with tightening from here.”

Highlights of Canada July GDP Report

  • Oil and gas output was down 1.8%, leading a 0.5% drop for goods producing industries.
  • A 2% gain in wholesale output led gainers. Excluding wholesale, GDP would have been down 0.1%

The Canadian dollar slumped on the report, dropping 0.3 percent to C$1.2461 per U.S. dollar as of 9:01 a.m. in Toronto trading.

Friday’s report is the last set of GDP data before the Bank of Canada’s next rate decision on Oct. 25. Governor Stephen Poloz said this week policy makers would proceed “cautiously” as they gauge the impact of the two rate increases.

Even with very little growth in August and September, Canada’s economy would still probably be poised to grow at a rate of 2 percent or more in the third quarter, which would be above what the central bank deems is the economy’s potential.

Monthly growth has averaged 0.4 percent in the previous eight months, the strongest since at least 2010.

“Although the economy began the third quarter poorly, there’s still considerable built-in momentum from the strong ending to the second quarter,” said David Madani of Capital Economics. “So, barring another flat reading in August, we aren’t overly concerned by one weak monthly GDP report.”

Other Details

  • The figures seem to show the slump in housing has become a drag. Credit intermediation was down 1%, residential construction dropped 0.9% and activity at real estate agents declined 1.5%. The finance and insurance sector’s decline of 0.6% was the fastest since April 2015
  • Manufacturing dropped 0.4%, the most since February, led by a 13.5% drop in motor vehicles
  • Services-producing industries were up 0.2%, led by wholesale
  • Overall construction was down 0.5%, the biggest drop this year
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