The Canadian economy experienced a period of stagnation in August and is likely to have slipped into a shallow contraction in the third quarter, according to official data released by Statistics Canada. The slowdown has been attributed to various factors including higher interest rates, inflation, forest fires, and drought conditions across the country.
Preliminary data indicates that the real GDP remained unchanged in September, marking three consecutive months of no growth. The report further reveals that while services-producing industries experienced a slight increase of 0.1% month-on-month, goods-producing industries contracted by 0.2%. Out of the 20 industrial sectors analyzed, only eight showed expansion.
Specifically, the manufacturing sector contracted by 0.6% in August, with both non-durable and durable goods manufacturing contributing to the decrease for the third straight month. On the other hand, the mining, quarrying, and oil and gas extraction sector saw a rise of 1.2% in August. Statistics Canada noted that this increase in activity was significant as it surpassed the April level before falling in May due to the impact of forest fires.
In terms of trade, wholesale trade experienced a growth of 2.3% in August, while retail business continued its decline for the third consecutive month, shrinking by 0.7%. The accommodation and food services sector also saw a contraction of 1.8% in August, impacting both subsectors.
The agriculture, forestry, fishing, and hunting sector experienced a significant decline of 3.2% in August, the largest drop since August 2021. The report highlights that crop production, excluding cannabis, declined by 6.7% in August 2023, mainly due to dry conditions in Western Canada affecting expected yields.
Tiago Figueiredo, an economist with Desjardins, commented on the situation, stating that the debate on whether the economy is already in a recession is less important compared to the anticipated negative impacts of monetary policy. Figueiredo expects these impacts to depress economic activity moving forward and predicts a clearer entry into a recession in 2024.
The Bank of Canada recently decided to maintain its benchmark interest rate at 5% for the second consecutive time in its latest meetings. This decision came after ten previous rate hikes since early 2022. While the interest rate was kept steady, the regulator warned that additional increases may be necessary as it tries to tackle soaring inflation levels.
In summary, the Canadian economy has experienced a period of stagnation in recent months, with preliminary data suggesting potential contraction in the third quarter. Various factors such as higher interest rates, inflation, forest fires, and drought conditions have contributed to this economic slowdown. The manufacturing, retail, and accommodation and food services sectors have particularly struggled, while the mining and wholesale trade sectors have shown some resilience. The agriculture sector has been significantly impacted by dry conditions, leading to a decline in crop production. Economists anticipate further negative impacts from monetary policy and expect the economy to enter a recession in 2024.