Nicolai Haugsted
Canada’s economy suddenly hits the brakes just before another round of US tariffs arrives.
Canada entered the second half of the summer with considerably less economic momentum than it enjoyed during the spring.
After three consecutive months of expansion, the economy effectively stopped growing in July, leaving businesses and policymakers with a rather inconveniently timed flat month just before another round of US tariffs arrived.
Reuters via. Statistics Canada reported Tuesday that real gross domestic product was essentially unchanged in July. The result matched expectations but marked a clear slowdown after GDP by industry climbed 0.9 percent across the second quarter.
July therefore offers something of a before picture.
New US tariffs affecting Canadian goods arrived in August, meaning the latest confirmed GDP numbers largely capture the economy before those measures could leave their mark.
Early figures suggest Canada may nevertheless have found its way back into positive territory during August.
Canada spends July going nowhere
Neither side of the Canadian economy managed to provide much excitement in July.
Goods-producing industries were largely unchanged, while services-producing industries also barely moved, according to Statistics Canada.
Manufacturing provided one of the biggest drags.
Factory output fell 0.9 percent, snapping three consecutive months of growth. Petroleum refineries played a major role in that decline, with activity dropping 6.2 percent during the month.
Mining, quarrying and oil and gas extraction also slipped 0.5 percent, marking a second consecutive monthly decline.
Those losses arrived after a considerably stronger second quarter. Statistics Canada previously reported that real GDP increased 0.8 percent on an expenditure basis during those three months, while GDP measured by industry rose 0.9 percent.
Construction helps clean up some of the mess
Not every corner of the goods economy was moving backward.
Utilities climbed 1.7 percent, while construction advanced 1.3 percent.
July marked the fourth consecutive month of growth for construction, allowing the sector to offset much of the weakness elsewhere.
The contrast was particularly useful given the manufacturing decline and another weaker month for resource extraction.
Canada’s second quarter had already benefited from broad industrial growth, with 17 of 20 sectors expanding over the three-month period. July brought a much less energetic start to the following quarter.
Shoppers were not much help either
Services offered their own collection of soft spots.
Retail trade contracted 1 percent during July, while wholesale trade fell 0.4 percent.
The wholesale decline was particularly notable after the sector had been among the stronger contributors to growth in June.
Professional, scientific and technical services supplied better news, increasing 0.3 percent. That represented the sector’s strongest monthly performance in 20 months.
Real estate, rental and leasing activity also rose 0.2 percent, extending the real estate sector’s expansion to a sixth consecutive month.
Put together, the gains and losses left Canada’s economic scoreboard almost perfectly balanced.
August may already look better
Statistics Canada’s first estimate for August provides a little more movement.
The agency currently estimates that real GDP grew 0.2 percent during the month, led primarily by stronger mining, quarrying and retail activity.
That figure remains preliminary and can change once Statistics Canada receives more complete information. Official August GDP-by-industry figures are scheduled for release on October 30.
Such a rebound would matter after July’s pause, particularly as the Bank of Canada watches how trade tensions feed through the broader economy.
The central bank has projected annualized economic growth of 1.5 percent for the third quarter.
Financial markets, meanwhile, are entertaining a different question entirely.
Money markets were pricing the possibility of a 25-basis-point interest-rate increase in December, according to Reuters, even though most economists surveyed expect the Bank of Canada to leave rates unchanged through the remainder of the year.
The loonie barely reacts
Markets greeted the GDP release without much drama.
The Canadian dollar weakened about 0.06 percent to C$1.4179 per US dollar, equivalent to roughly 70.53 US cents.
Two-year Canadian government bond yields slipped 3.1 basis points to 2.567 percent.
July’s number consequently leaves Canada with neither an economic alarm bell nor much reason for celebration.
