The Canadian economy showed no growth in August as elevated interest rates continued to weigh on consumer spending and business activity. Statistics Canada’s latest gross domestic product report says gains in services-producing industries were offset by declines in goods-producing sectors, leaving overall output flat for the month. A preliminary estimate for the third quarter indicates annualized growth of about 1%.
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What is slowing Canada’s economy down? What’s growing?
Manufacturing was the largest single drag on economic activity in August, followed by declines in utilities, wholesale trade, and the transportation and warehousing sector. Statistics Canada highlighted the impact of shutdowns at the country’s two largest railways, which disrupted freight movement and contributed to the fall in transportation and warehousing output. These disruptions often ripple through supply chains and can temporarily reduce production and distribution activity.
At the same time, several services-producing industries showed resilience, helping to offset some of the weakness in goods-producing sectors. Services such as professional and finance-related activities, healthcare, and some consumer-facing sectors often respond differently to higher interest rates than manufacturing and energy-intensive industries. While services provided a partial cushion in August, they were not strong enough to produce positive overall growth for the month.
Statistics Canada’s report also included a preliminary estimate suggesting real GDP rose by 0.3% in September. Taken together, the agency’s current assessment points to roughly 1% annualized growth for the third quarter, a pace weaker than what the Bank of Canada had projected.
Are there more Bank of Canada rate cuts to come?
The subdued economic readings give the Bank of Canada room to cut interest rates further. Policymakers have been watching the slowdown closely, and while recent data make the case for additional easing, officials have emphasized a data-dependent approach. There remains uncertainty about the timing and the size of any future cuts because forthcoming inflation and economic data will influence the central bank’s decisions.
TD economist Marc Ercolao noted that while the latest figures are not likely to trigger alarm at the central bank, they do reinforce concerns about a weakening economy. Those concerns help explain why the Bank of Canada has signaled a willingness to reduce its policy rate as inflation edges toward the 2% target.
Last week the central bank implemented a half-percentage-point rate cut, responding to signs that inflation has moved back to target. Governor Tiff Macklem has said the Bank will assess conditions one decision at a time rather than committing to a specific path of cuts. Officials expect that, over time, rate reductions will filter through the economy and support a rebound in growth, but the timing and magnitude of that rebound remain uncertain.
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Read more about Canada’s economy:
- Canada’s inflation rate and what it means for your investments
- What is Canada’s inflation rate?
- Making sense of the Bank of Canada interest rate decision