Data indicate that Canada's economic activity unexpectedly increased by a little amount in July, while the country's gross domestic product (GDP) was likely flat in August. The surprise increase is not expected to have a significant impact on the central bank.
According to figures released by Statistics Canada on Thursday, the Canadian economy expanded by 0.1 percent in July as opposed to the 0.1 percent decline predicted by economists. The first decline in service-producing businesses since January was more than offset by growth in companies that produce products.Although the economy did better than expected this summer, Royce Mendes, head of macro strategy at Desjardins Group, noted in a note that the performance still wasn't very impressive.
According to economists, the modest increase in July and expected lack of growth in August point to third-quarter annualized GDP growth of approximately 1%, which is significantly lower than the Bank of Canada's most recent prediction of 2.0%.
Benjamin Reitzes, Canadian rates and macro analyst at BMO Economics, wrote in a note that after a strong first half of the year, momentum "appears to be slowing as multi-decade-high inflation and quickly rising interest rates weigh on the economy."
In order to combat inflation, which started to somewhat slow down in July but is still running at levels not seen in over 40 years, the Bank of Canada boosted rates by 75 basis points to 3.25 percent earlier this month.The boost was driven by oil sands extraction, which increased output by 5.1 percent, according to the July GDP figures. Crop production also contributed, rising by 7.2 percent, primarily due to increases in wheat and other grain quantities.
Since Russia's invasion of Ukraine on February 24, which Moscow refers to as a special military operation, demand for Canadian wheat has surged, which has boosted export quantities.
According to Statscan, a 7.1 percent loss in output at gas stations contributed to a severe contraction in Canada's retail trade sector in July, which sent it plummeting to its lowest level since December 2021. However, this trend is expected to have reversed in August.
Due to a decline in bar and restaurant traffic in July, lodging and food services also experienced a decline.The Bank of Canada was expected to raise interest rates at its upcoming decision in late October as a result of high inflation, but then, according to economists, the situation might change.
The slowing of economic growth is the reason, according to Mendes, that the Bank of Canada will only raise interest rates one more in October. The central bank's policy rate is expected to increase to 4 percent in December or January, according to the money markets, after an increase in October.
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