Canada’s economy experienced a contraction in August, defying expectations of no growth, according to data from Statistics Canada released on Friday. Despite this setback, an initial estimate suggests that the economy may avoid a recession in the third quarter.
The economy shrunk by 0.3% in August, following a revised 0.3% growth in the previous month, effectively offsetting any growth seen so far in the current quarter. This marks the fourth monthly decline in the last five months, driven by decreases in output from both the services and goods sectors.
An early indicator forecasts a potential 0.1% expansion in the monthly GDP for September, which would bring the total annualized growth for the third quarter to 0.4%, falling short of the Bank of Canada’s expectations. It is important to note that the advance estimate is subject to change, as it is based on industrial output data, whereas the official annualized quarterly GDP figures will be released by StatsCan based on income and expenditure data.
The anticipated growth in the third quarter, contingent on a boost in output in September, raises hopes of Canada sidestepping a recession in Q3. A recession is typically defined as two consecutive quarters of economic contraction.
The economy faced challenges in the second quarter as well, with a 1.6% contraction in GDP attributed to tariffs on steel, cars, lumber, and aluminum, alongside general trade uncertainty that impacted exports and overall growth. The Bank of Canada recently projected a 0.5% annualized GDP for the third quarter.
Notably, the manufacturing sector, significantly affected by U.S. tariffs and constituting nearly one-tenth of the GDP, contracted by 0.5% in August, as per the statistical agency’s data. The most substantial decline was observed in mining, quarrying, oil, and gas extraction, with a 0.7% contraction, primarily due to drops in metal ore mining and coal mining.
Within the services sector, contractions were prominent in transportation, warehousing, and wholesale trade, partly attributed to an airline strike. However, growth in retail trade and real estate, rental, and leasing sectors helped offset some of the decline in services.
Overall, the economic landscape remains uncertain, with various factors influencing the trajectory of Canada’s GDP in the coming months.