Analysts are saying the flat growth in July was due in part to maintenance shutdowns in manufacturing and a decline in conventional oil holding growth at zero, however, economists were expecting GDP to rise by 0.1 percent in August.
More worrying, this is the first drop in the GDP since October 2016. Statistics Canada said on Tuesday that goods-producing industries contracted for the second consecutive month, declining 0.7 percent. Manufacturing was particularly hard-hit with chemical manufacturing posting its biggest one month decline in 20 years.
The Financial Post is reporting most analysts are anticipating a continued slowdown in the second half of this year, especially after seeing the GDP rising 4.0 percent in the first six months. Tuesday’s drop could lead to a further drop through the end of the year.
“The run of amazing Canadian economic data is officially over, with growth coming back to reality in a hurry,” Bank of Montreal economist Doug Porter said.
The Canadian dollar weakens
After the Statistics Canada report came out, the Canadian dollar lost about half-a-cent reacting to the news, however, there was some recovery. By mid-morning on Tuesday, the Loonie was exchanging hands at 77.56 cents US.
Canada’s central bank hiked rates in July and September for the first time in almost seven years. Most economists say the contraction in the domestic economy supported the Bank of Canada’s caution on further interest rate hikes.
“Any piece of data that would confirm the Bank of Canada’s caution would have an outsized effect on the currency,” said Eric Theoret, currency strategist at Scotiabank, according to the Globe and Mail. “The Canadian dollar was vulnerable.”
Bank of Canada Governor Stephen Poloz said the country is now at a “crucial” spot in the economic cycle and there are a number of uncertainties going forward.
Canada’s GDP going forward
The Bank of Canada, remaining cautious, points out that any progress in the Canadian and world economic outlook is progressing as anticipated earlier this year, however, the outlook remains cautious because it is “subject to substantial uncertainty about geopolitical developments and fiscal trade policies” — including the on-going NAFTA re-negotiations.
Not only are the NAFTA talks holding economies in Canada, the U.S., and Mexico in limbo, but the U.S. Federal Reserve was expected to announce a rate hike, but held off on making a decision until December, according to CNBC News.
The Central Bank kept its benchmark interest rate target between 1.0 and 1.25 percent and its statement “maintained positive language on the current state of the economy.”
And Canada’s October employment report and trade data for September is expected to be out on Friday. So there will be more to ponder over as time goes forward.
