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Developed News Story | Canada’s economic forecast declined unexpectedly, but inflation persists

Canada’s economic activity unexpectedly edged up in July, data shows, while the gross domestic product (GDP) in August was most likely flat, with the surprise gain seen unlikely to change much for the central bank.

The Canadian economy grew 0.1 percent in July, compared with analysts’ forecast for a 0.1 percent decline, Statistics Canada data showed on Thursday. Growth in goods-producing industries more than offset the first decrease in services-producing industries since January.

“The economy fared better than anticipated this summer, but the showing still wasn’t much to write home about,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

The slight gain in July and likely lack of growth in August suggest third-quarter annualized GDP growth of about 1 percent, well below the Bank of Canada’s most recent forecast of 2.0 percent, analysts said.

“After a solid first half of the year, momentum appears to be slowing as multi-decade-high inflation and rapidly rising interest rates weigh on the economy,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Economics, said in a note.

The Bank of Canada raised rates by 75 basis points to 3.25 percent earlier this month to fight inflation, which began to cool slightly in July but is still running at levels not seen in nearly 40 years.

But Canada’s retail trade sector contracted sharply in July, falling to its lowest level since December 2021, pushed down by a 7.1 percent decline in output at petrol stations, Statscan said, though that likely reversed in August.

Podcast | Developed News Story | Canada’s economic forecast declined unexpectedly, but inflation persists | subtitles included

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