Canada’s economic momentum stalled in August, with growth across the service sector balanced out by declines in goods-producing industries, according to Statistics Canada’s latest GDP report. The economy remained flat through the month, and early estimates suggest a modest annualized growth rate of just one per cent for the third quarter, falling short of the Bank of Canada’s 1.5 per cent projection.
Despite an anticipated 0.3 per cent increase in GDP for September, high interest rates continue to strain consumer spending and business activity, pushing the Bank of Canada’s growth estimates out of reach. This report follows the Bank’s recent half-percentage point interest rate cut, bringing its key rate down to 3.75 per cent as inflation settles near the target rate of two per cent. The Bank has signaled optimism for a rebound in economic growth next year as rate cuts are expected to filter through the economy.
Andrew DiCapua, a senior economist with the Canadian Chamber of Commerce, noted that economic activity, which showed early momentum in the summer, has since slowed. “While there are indications September may see positive growth, other metrics like hours worked and retail sales—excluding automotive—are indicating a downturn,” he said.
The manufacturing sector was a significant drag on August’s numbers, led by declines in Ontario’s automotive plants, which were updating assembly lines. Utility, wholesale, transportation, and warehousing sectors also reported downturns. Shutdowns at Canada’s two largest railways further impacted the transportation and warehousing sector, contributing to the stagnant growth rate.
The weaker-than-expected growth figures support the Bank of Canada’s recent interest rate cut and provide further justification for potential rate reductions. However, the extent of future rate cuts remains uncertain, as the Bank awaits additional data on inflation and the broader economy ahead of its next rate announcement on December 11.