Canadian Economy Contracts in August
After being on a tear, it looks like the Canadian economy might be taking a breather, or worst yet, starting to cool. In the first quarter, the Canadian economy advanced at 3.7%, in the second quarter, it surged 4.5%.1,2
For the first six months of 2017, Canada’s economy expanded by an average of 0.4% monthly. In the second half of 2016, Canada’s gross domestic product (GDP) averaged 0.3% monthly growth.
But then things changed.
In July, the first month of the third quarter, Canada’s GDP growth was virtually unchanged. July’s flat showing ended eight straight months of gains.3 In August, Canadian GDP decreased 0.1%.4
Everyone knew the Canadian economy couldn’t keep the rapid pace of GDP growth going forever. But one flat month followed by a contraction shows that the Canadian economy is starting to cool.
While some could argue you shouldn’t read too much into the two months, the fact is, July and August could signal a return to a more realistic growth rate for the Canadian economy.
There are some benefits to having the Canadian economy cool down. It would mean the Bank of Canada would put a temporary end to rate hikes, which would make it less expensive to borrow.
That said, a cooling Canadian economy could start to snowball, especially if it’s hit with headwinds like a collapse of the North American Free Trade Agreement. In the meantime, the Canadian economy could also take a hit if consumer confidence levels fall. Canadians are fairly optimistic, but weak third-quarter GDP data could put a damper on fourth-quarter economics.
The Canadian dollar is down 4.75% since hitting 2017 highs in early September and a cooling off in the third quarter could put pressure on the loonie.
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- “Gross domestic product, income and expenditure, first quarter 2017,” Statistics Canada web site, May 31, 2017; http://www.statcan.gc.ca/daily-quotidien/170531/dq170531a-eng.htm.
- “Gross domestic product, income and expenditure, second quarter 2017,” Statistics Canada web site, August 31, 2017; http://www.statcan.gc.ca/daily-quotidien/170831/dq170831a-eng.htm.
- “Gross domestic product by industry, July 2017,” Statistics Canada web site, September 29, 2017; http://www.statcan.gc.ca/daily-quotidien/170929/dq170929a-eng.htm.
- “Gross domestic product by industry, August 2017,” Statistics Canada web site, October 31, 2017; http://www.statcan.gc.ca/daily-quotidien/171031/dq171031a-eng.htm.
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