September 29, 2023 | 08:56
Canadian Real GDP (July) — Headwinds Blowing
Canadian real GDP was flat in July, a tick below consensus but in-line with our call. The flat reading is an improvement from the prior month’s 0.2% decline, which was disrupted by wildfires across parts of Canada, but a stronger rebound was limited by the B.C. port strike that took place in July. So, even this reading isn’t entirely clean. StatCan also notes that the preliminary flash estimate for August is a modest +0.1%. All told, assuming growth remains modest in September as the impact of high interest rates continues to bite, that leaves the Canadian economy on track for a flat-to-very low positive print for all of Q3. Recall that the Bank of Canada had assumed 1.5% growth in the July Monetary Policy Report, so we’re on pace to see another undershoot of the near-term forecast.
Digging into some of the details, manufacturing fell a steep 1.5% in July and was the biggest drag on growth in the month. StatCan notes less inventory building and some impact from the port strike in areas such as chemical manufacturing. Agriculture was also weak (-1.5%), while a few service industries (e.g., info & culture, management and retail) were down in the month. On the flip side, tourism-related industries saw a solid month up 2.3% after back-to-back declines, while wholesale grew a decent 0.3%. Mining also jumped 1.8% on the back of higher natural gas output following past wildfires.
The Bottom Line: While some disruptions have compromised the ‘cleanliness’ of recent GDP data, the bigger picture is that Canada is really struggling to grow right now. Real GDP is little changed over the past six months, which looks even weaker when considering that the population is exploding at a 3% per-year run rate. The Bank of Canada still has their eyes on stubborn core inflation and firm wage growth, but struggling growth argues for them to remain on hold and lean on the tightening that has already been put in place.