EconoFACTS

October 31, 2024 | 09:20

Canadian GDP — Slow Train Coming

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Canadian real GDP was flat in August and the prior month's gain was revised down a tick to a modest +0.1%, resulting in only minimal growth over the summer. The sluggish news was somewhat countered by StatCan's flash estimate for September, where they look for activity to pop back up by a sturdy 0.3%. Still, the soft conditions in the earlier months suggest that growth for all of Q3 will come in closer to 1% annualized than the BoC's latest estimate of 1.5% (and our 1.3%). The sturdy September result does give a good handoff for Q4 activity, keeping our 2.0% forecast for the quarter on track. Even with the small downside miss for Q3, growth for all of 2024 remains on course for a modest 1.1% advance, which we look to improve to 1.8% in 2025.

In August, the big drag was manufacturing (-1.4%), a sector which has been the heaviest weight on the economy over the past year (at down 4.0% y/y, versus a +1.3% y/y gain for the entire economy). While auto retooling dented output in the month, the sector has contracted by 6% since early 2022 and is now at its lowest ebb in almost eight years (aside from the pandemic distortion). The short-lived rail strike also weighed on activity, as some firms were gearing down ahead of the labour action, and rail transport itself fell 7.7% on top of a 4% drop in July, drooping to its lowest level since 2016 (and even below 2020 lows). Utilities were also weak, falling 1.9%, adding to an overall 0.4% drop in the goods-producing sectors. On the flip side, services ground out another 0.1% gain, led by retail (0.6%) and financial services (0.5%). The public sector also rose 0.2% and is up 2.9% y/y.

The September snapback was keyed by finance, construction and retail trade, although a bounce in rail transportation will likely add an assist.

Bottom Line: On balance, this is a mildly disappointing set of results—culminating in just 1% Q3 growth—although the expected rebound in September offers a sprinkling of good news. Bigger picture, the Canadian economy continues to grind along in a modest growth channel of around 1%-to-1.5%, holding below potential and opening up more slack. While far from conclusive, chalk this one up on the dovish side of the ledger. However, the BoC will see another GDP result (the full Q3 report) before next deciding on rates, along with two jobs reports and another CPI, so this less-than-scary reading hardly settles the debate over the next move.

Table 1 - Canada — Monthly Real GDP

(month/month % change)

Source: BMO Economics, Haver Analytics