Real gross domestic product increased 0.3% in the third quarter, after remaining essentially flat over the first half of the year, Statistics Canada reported Monday.

Most of the third quarter gain occurred in July, StatsCan said. Economic activity declined in August before edging up 0.1% in September ahead of the financial market meltdown in October.

Canadian producers increased their output in the third quarter, StatsCan said. The production of goods rebounded in the third quarter following four consecutive quarterly declines. The increase was led by the mining sector, notably support activities for oil and gas extraction, as well as construction. The manufacturing sector edged up while forestry continued its decline. Production in the services industries continued to grow, with notable gains in the public sector and, to a lesser extent, in retail trade and wholesale trade.

StatsCan noted that economic growth has been weak since the beginning of the year, as foreign demand has weakened and growth of domestic demand has slowed. Exports declined for the fifth consecutive quarter and growth of final domestic demand decelerated to 0.1%, largely as a result of a slowdown in consumer expenditure.

“The instability of world financial markets did not appear to have a significant impact on funds borrowed in domestic financial markets in the third quarter,” StatsCan said. However, funds borrowed by the domestic non-financial sectors on financial markets slowed. The fluctuation was similar to that which has typically been observed in the past.

“The reduction in funds borrowed by the household sector was partially offset by increased borrowing by non-financial corporations in the third quarter, which accounted for just over one-third of all funds raised, driven by an increase in bank loans,” StatsCan said.

The modest growth was partially driven by non-residential structures and higher inventories, neither of which are sustainable going forward, according to BMO Capital Markets deputy chief economist Douglas Porter.

“Fourth quarter GDP will quite likely be negative, as the deepening U.S. downturn digs more heavily into exports and domestic demand is hit by sagging consumer and business confidence,” Porter said.

RBC Economics Research goes further, predicting growth to be negative in the next two quarters. It expects the Bank of Canada to cut the overnight rate by another 50 basis points to 1.75% next week.

IE