Canadian real GDP rose 0.1% in August.

The manufacturing sector expanded for the first time in nine months, thanks to the chemicals and paper sectors. However, the tech industries are still in decline. Residential construction and wholesale trade were strong. However, CIBC World Markets isn’t impressed, “Canada’s economy managed to generate some modest growth in August, but that was then and this is now. North America’s economic landscape has deteriorated meaningfully in the wake of September 11.”

Bank of Montreal economists estimate that GDP contracted at an annual rate of 1% in the third quarter. “It will likely shrink again in the fourth quarter because consumer spending is poised to decline amid mounting job losses and deteriorating confidence.”

Over at BMO Nesbitt Burns, the view is similar, it says, “Even with the modest monthly gain, it still appears that GDP for all of Q3 is on track for a small decline, similar to that seen in this morning’s U.S. data. This would mark the first quarterly decline in Canadian GDP since 1992. We are looking for an even steeper drop in Q4 Canadian GDP, probably on the order of 2%, at an annual rate.”

CIBC says August’s GDP gain looks to be sandwiched around a series of output losses. “A solid employment gain in September could limit the damage we will see this time next month, but a decline of 0.2% would appear a reasonable call at this time. A decline in that order would leave Q3 GDP at basic prices down nearly 1%, barring any meaningful revisions to the prior months. August’s small gain does not therefore alter our call for a moderate second half recession.”

RBC DS Capital Markets Research says it expects economic activity will contract in both Q3 and Q4 and recovery will lag that of the U.S. The Bank of Canada will cut rates further in the coming months and Canadian financial markets are likely to outperform the U.S.

BMO says, “To address the economic downturn, the Bank of Canada is expected to slash overnight lending rates by 50 basis points at the November 27 policy announcement date.”