Canadian GDP decreased 0.1% in August after remaining essentially flat in July, Statistics Canada announced October 31.
A 0.1% increase in services industries was not enough to offset a 0.7% drop in the goods-producing sector. The drop was driven by a 1% decline in manufacturing and a 0.8% decrease in mining, quarrying and oil and gas extraction.
The decrease was a surprise, according to RBC assistant chief economist Paul Ferley, as analysts had been expecting an increase of around 0.1%.
“A key downward surprise was the 1% decline in manufacturing activity with the chemical component particularly weak,” Ferley said. “Some of the latter weakness was attributed to maintenance shutdowns which will eventually reverse, though Statistics Canada also highlighted lower export demand.”
Construction fell 0.1% in the month. A drop in work on single-family homes was reflected in a 0.9% decline in residential construction. Partially offsetting this decline was a 0.5% increase in non-residential construction.
One area of strength was a 0.3% increase in real estate agents and brokers. Statistics Canada said this was driven by activity in Greater Vancouver and Greater Toronto.
TD senior economist Brian DePratto said the latest report is “no reason for Canadians to worry,” as much of the weakness in 2017’s third quarter relates to temporary factors. He points out that growth is still above potential.
“Indeed, although there remain some wildcards, such as the impact of a strike in the auto sector, it is likely that output will come back to life in coming months, particularly given still encouraging signs from labour and housing markets,” he said.
DePratto said economic growth in Q3 2017 – which is now tracking around 1.9% – is in line with the Bank of Canada’s forecast released last week. He said the most likely “trigger point” for any changes to the overnight rate remains in January.
The Canadian dollar dipped half a cent relative to the U.S. dollar after the data was released. As of press time, the loonie was trading at around 77.65 cents U.S.