The 0.1% increase in Canadian GDP was a touch lower than markets expected, but underlying details were arguably a touch stronger, writes Nathan Janzen – senior economist at the Royal Bank of Canada (RBC).
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Commodities output was soft with oil & gas extraction reportedly temporarily restrained by maintenance shutdowns for a second consecutive month. To be sure, the oil & gas sector isn’t expected to be a major source of near-term growth as long as transportation constraints out of western Canada remain in place, but the monthly drop in July is probably more noise than signal. A drop in utilities output -tied to unusually cool August weather – will also eventually be unwound. Outside of those components, GDP increased 0.3% in August.
Headline GDP growth will still be softer in Q3 than in Q2 with our tracking pointing to a 1 1/2% increase. That is similar to the Bank of Canada’s call for a 1.3% gain. But underlying details still leave the economy to-date looking relatively solid. The goods sector has looked soft, but a tick up in manufacturing output in August still leaves Canada looking relatively resilient relative to other advanced economies. And there remains little evidence that softer goods activity to-date is spilling over into broader Canadian labour market conditions or more fundamentally into the much-larger service-sector. That will do little to quell concerns about the go-forward outlook, which are still centered around the impact of the US-China trade war. But current economic data still leaves the economy looking okay for now.
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