October 31, 2023 | 09:02
Canadian Monthly GDP (Aug.) — Trick or Treat or Recession?
The Canadian economy continues to struggle under the weight of the BoC's rate hikes, stagnating in August, with GDP flat-lining for a second straight month. The headline was flattered by gains in mining/oil/gas, which have now fully reversed the wildfire-driven declines and some maintenance-driven weakness. However, declines in manufacturing, utilities and agriculture pulled goods-producing sectors down 0.2% overall. Services sectors saw a modest 0.1% increase in activity, but 9 of 15 sub-sectors were flat or lower. Gains were driven by wholesale trade, transportation/warehousing and finance.
The flash estimate for September is for yet another flat reading, putting Q3 GDP on pace to be essentially unchanged (or slightly negative on an annualized basis according to Bloomberg). GDP has gone nowhere for seven consecutive months. And, given the fact that Canada has yet to feel the full impact of prior rate hikes, there's still more downside risk ahead for the economy.
Key Takeaway: This is yet one more crystal clear sign that the Bank of Canada should be done hiking. The potential for a second consecutive negative quarterly GDP reading will cause recession chatter to ramp up quickly. The soft economic backdrop, which still has downside, will drive inflation down over time...it's just a question of how quickly.