Economy stalled in August, Q3 growth looks to fall short of Bank of Canada estimates

OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.
Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries. A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.
Andrew DiCapua, a senior economist with the Canadian Chamber of Commerce, said economic momentum at the start of the summer doesn’t seem to be holding.
“There are signs that September growth is going to be positive, but if you look at a variety of different indicators, like hours worked being down, or even retail sales when you take out automotive vehicles, those are all pointing towards downward trends,” DiCapua said.
The manufacturing sector was the largest drag on the economy in August, followed by utilities, wholesale and trade and transportation and warehousing.
DiCapua said manufacturing fell across the sector due to lower orders and Ontario automotive plants updating their assembly lines.
The report noted shutdowns at Canada’s two largest railways also contributed to a decline in transportation and warehousing.
Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.
The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.
But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.
“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.
The central bank has acknowledged repeatedly that the economy is weak and growth needs to pick back up.
Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.
Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.
DiCapua says the Bank of Canada has a lot more room to cut until it gets to a rate that doesn’t stimulate or weigh on the economy.
“I think they still have more to go in terms of providing relief to the Canadian economy,” he said. “And I wouldn’t be surprised if they took another bold move in December.”
The Bank of Canada’s key interest rate currently stands at 3.75 per cent.
The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.
This report by The Canadian Press was first published Oct. 31, 2024