Real gross domestic product declined 0.3% in August and early signs suggest the economy barely managed any growth in the third quarter, Statistics Canada said Friday.
Goods-producing industries were down in August for the fifth time this year while the services side contracted for the first time in six months, Statistics Canada said.
The agency said August’s decline mostly offsets a gain of 0.3% in real GDP for July, which was revised a tick higher from earlier estimates. Statistics Canada had initially expected flat growth for August in its advance estimate.
The agency said a work stoppage among Air Canada flight attendants hampered air transportation activity in August. That subsector was down 4.6% in the month, marking its steepest decline since the Covid pandemic.
Drought conditions constrained hydroelectric power generation in the month, the agency said, throttling overall output from the utilities sector.
The wholesale trade industry and the mining and quarrying subsectors posted declines in August as well, partially offset by growth in retail trade.
The tariff-sensitive manufacturing industry posted a decline of 0.5% in August, but an early look at September’s real GDP figures show the sector might have rebounded last month.
Statistics Canada’s advance estimates for September call for a gain of 0.1% in real GDP, led by increases in manufacturing, finance and insurance, mining, quarrying and oil and gas extraction. The agency expects further losses in wholesale trade and a decline in retail trade were drags on growth last month.
Based on the early estimates, Statistics Canada expects 0.4% annualized growth for the third quarter. That’s a tick below the Bank of Canada’s forecast for the quarter released alongside its quarter-point rate cut earlier this week.
Statistics Canada said the Canadian economy shrank 1.6% on an annualized basis in the second quarter as tariffs from the United States drove a sharp decline in exports.
Oxford Economics senior economist Michael Davenport said in a note Friday that Canada’s economy is teetering on a technical recession with roughly flat growth expected for the third quarter.
Whether economic data meets the traditional definition of a recession — two consecutive quarters of real GDP decline — Davenport said he expects the economy “will struggle to grow in the near term and remain vulnerable to further trade-related disruptions.”
The Bank of Canada signalled that it may be finished with rate cuts following its quarter-point reduction on Wednesday, which left the benchmark interest rate at 2.25%. Governor Tiff Macklem said it would take a material change in the economy compared to the central bank’s baseline forecasts to warrant further easing.
Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said in a note to clients Friday that one-time factors like drought and the Air Canada labour disruption will be reversed going forward.
The Toronto Blue Jays post-season run will also provide a lift to the October GDP figures, he said, and next week’s federal budget should also offer fiscal stimulus for the economy.
“We’ll need to see more weakness than this to spook the Bank of Canada after this week’s messaging that they’re happy to move to the sidelines as long as the economy performs in line with its forecast,” Reitzes said.
Meanwhile, Davenport said there’s plenty more data to come before the Bank of Canada’s next rate decision on Dec. 10. He said there’s a “small chance” of another rate cut or two if the labour market and GDP figures undershoot the central bank’s expectations.