Canadian Economy Expands at Slower Pace than Expected in July

Table of Contents

Third Quarter Growth Lags Behind Forecast

According to Douglas Porter, chief economist at the Bank of Montreal, Canadian real GDP growth is tracking below 1.5% in the third quarter, which is below potential and even below the modest pace of the past year. This means that there will eventually be more downward pressure on inflation.

Inflation Falls Below Target

Inflation fell to the central bank’s two per cent target in August, and Governor Tiff Macklem said growth needs to pick up so that inflation does not fall further below that level. The bank has made three consecutive cuts to its policy rate since June, with its next interest rate announcement scheduled for October.

Economists Weigh in on Interest Rate Cuts

Economists say this latest data strengthens the case for a steeper 50 basis-point cut, but jobs data set to be released next month may be the deciding factor. Katherine Judge, an economist at the Canadian Imperial Bank of Commerce, said that while today’s data is not enough to sway them from their 25-basis-point call, further cuts will tilt steeper if the economy deteriorates significantly further.

Services-Producing Sector Drives Growth

The services-producing sector grew by 0.2% in July, driven by retail services, finance and the public sector. The goods-producing sector grew by 0.1%, driven by manufacturing and utilities. However, construction contracted for the second month in a row by 0.4%, with most of its subsectors reporting decreases.

Transportation and Warehousing Also Decline

Transportation and warehousing also declined by 0.4% due to negative impacts from the wildfires, Statistics Canada said.

Economic Indicators

Gross Domestic Product (GDP): The Canadian economy grew by 0.2% on a month-over-month basis in July.
Inflation Rate: Inflation fell to the central bank’s two per cent target in August.
Interest Rates: The Bank of Canada has made three consecutive cuts to its policy rate since June, with its next interest rate announcement scheduled for October.

Expert Insights

Douglas Porter, Chief Economist at the Bank of Montreal: "Canadian real GDP growth is tracking below 1.5% in the third quarter, which is below potential and even below the modest pace of the past year."
Katherine Judge, Economist at the Canadian Imperial Bank of Commerce: "Further cuts will tilt steeper if the economy deteriorates significantly further."

Economic Implications

The latest data suggests that the path is still open for further interest rate cuts.
Economists say this latest data strengthens the case for a steeper 50 basis-point cut.

Conclusion

The Canadian economy grew by 0.2% on a month-over-month basis in July, falling short of the Bank of Canada’s forecast of 2.8% growth for the third quarter. This latest data suggests that the path is still open for further interest rate cuts. Economists say this latest data strengthens the case for a steeper 50 basis-point cut, but jobs data set to be released next month may be the deciding factor.