Canada: Months long upswing cools as economy stalls in July - HSBC

Canadian GDP was flat in July as the consensus expectation was for a 0.1% increase while the weakness in the goods producing sector was offset by increased output in the services sector, explains David Watt, Economist at HSBC.

Key Quotes

“The economy expanded by 4.3% (3m, % y-o-y), though signs that growth is slowing down are mounting.”

“Goods production fell by 0.5% in the month, with declines in mining and oil and gas extraction, agriculture, manufacturing, and construction. Utilities was the only goods-producing sector to record an increase in output.”

“Services output rose by 0.2%, with 10 of 15 sub-categories expanding. Wholesale sales, which rose by 2.0%, and accommodation and food services (+0.4%) were the main drivers of the increase in services output. Meantime, finance and insurance, and arts, entertainment and recreation reported lower levels of activity.”

“Implications

• Following eight straight monthly increases economic activity that had helped boost GDP growth above 4% (3m, % y-o-y), the upswing paused in July. Though we only have GDP for one month in Q3, we see enough evidence to suggest that economic growth is cooling, including surveys of small business showing that confidence has declined for four straight months through September.
• We believe that the July GDP report is consistent with our view that economic growth will slow to 2.2% q-o-q annualized in Q3 from the 4.5% expansion in Q2. We will pay close attention in coming months to developments in key sectors, including oil and gas, real estate, finance and manufacturing.”