MNI: Flat Aug Canada GDP Signals Q3 Is Lagging BOC Projection
Canada's GDP stalled in August following a 0.2% gain in July, suggesting the economy is lagging the central bank's third-quarter projection as officials have said they could accelerate interest-rate cuts to stem the risk of undershooting their inflation target.
Gains in oil and gas extraction and the public sector in August were offset by decreases in manufacturing, transportation and warehousing, Statistics Canada said Friday from Ottawa.
The slowdown followed July output that was a notch better than economists predicted on gains in retail sales, finance and public administration. Before the report economists at CIBC and BMO said a gain of 0.2% would only translate to Q3 growth closer to 1% than the 2.8% pace the BOC predicted in July.
While Governor Tiff Macklem has tied the pace of future rate cuts primarily to his view that inflation settles durably around his 2% target next year, he's also said a period of above-trend growth would help stabilize things after 10 rate hikes created slack in the economy. The Bank has made three consecutive quarter-point cuts since June and a growing number of investors see a half-point move at the next decision Oct. 23 with the last report showing inflation already at 2% and the Federal Reserve making a 50bp move.
Parts of the July GDP report suggested the economy still has some momentum. Production was temporarily held back by wildfires that shut down railways in western Canada and iron ore mines in Quebec and Labrador, and the finance industry picked up for a second month as the Bank began cutting borrowing costs.
Other signs of a weaker economy are the steady rise of unemployment over the last year and business surveys suggesting cooling wage demands and planned price increases. Economists also see household spending at risk as more people refinance mortgages at much higher rates in coming months.