MNI: Canada GDP Frayed By Wildfires, Floods And Port Strike

Canada's GDP was flat in July while a flash estimate shows 0.1% growth in August with many industries disrupted by wildfires and floods and a strike at the nation's largest port, providing little clarity to central bank officials figuring out whether the economy is slowing enough to avoid another interest-rate hike.

Statistics Canada's July figure lags an economist consensus for a 0.1% increase. Combined with the June decrease of 0.2% the economy appears to have much less momentum than earlier this year. 

Firm conclusions beyond that are hard to pin down given the list of disruptions from extreme weather to Vancouver's port strike. That labor disruption drove chemical production down 3.6%, the leading cause of a 1.5% fall in manufacturing that was the biggest since April 2021.  Air transportation also fell 2.1% as bad weather triggered major delays around the Canada Day holiday weekend. 

Other industries rebounded from shutdowns related to record forest fires, including a 26% jump in metal ore production and a 2.3% gain in accommodation and food services as more campsites and other holiday spots re-opened, StatsCan said. Natural gas production in western Canada also rebounded as the fires moved on. In total nine of 20 industries expanded in July. 

The Bank of Canada estimates growth at a 1.5% annualized pace in the third quarter, rebounding from a 0.2% contraction in the second quarter. Resilient consumer spending appears to be giving way to the drag of the Bank’s 10 rate hikes and a cooling job market.

Bets on an October rate hike still climbed to about 50-50 last week when inflation quickened to 4%, double the Bank’s target. Minutes from the Sept. 6 decision to hold at the highest since 2001 at 5% also showed officials wanted to avoid markets mis-interpreting the statement as a sign they were done and rate cuts were coming. Inflation has exceeded target since March 2021, increasing the danger of sticky price gains. Bank surveys and private polls suggest consumers and firms doubt CPI will return to target in the next two years.