Canada's economic growth stalled in August for the second month in a row, according to new data from Statistics Canada. The lack of movement in the real gross domestic product (GDP) fell short of the 0.2 per cent increase predicted by economists and missed the agency's own early estimates.

What caused the slowdown?

The stagnation was driven largely by significant contractions in specific sectors. Key contributors to the slowdown included:

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  • Wholesale trade, which fell 1.4 per cent.
  • Public administration, which saw its first decline in six months.
  • The utilities sector, which dropped 0.4 per cent.

Wholesale trade was impacted by a decline in motor vehicle and parts sales, partly due to lower imports and a major auto assembly plant shutdown. Additionally, economists noted that trade disputes and new tariffs between Canada and the United States may be impacting manufacturing and wholesale sectors.

Is the trend continuing?

Preliminary estimates suggest the slump may have deepened in September. Statistics Canada's flash estimates indicate that real GDP likely contracted by 0.1 per cent last month, driven by losses in mining, oil, and gas extraction.

While the third quarter is currently tracking toward an annualized growth rate of 1.3 per cent, this is notably lower than the 2 per cent growth forecasted by the Bank of Canada. However, some experts suggest the data is "very noisy" and could be influenced by temporary factors that might reverse in the final months of the year.

How will this affect interest rates?

The stalling Canadian economic growth has sparked debate among experts regarding the Bank of Canada's next steps. Following a recent rate hike, markets are currently pricing in expectations that the central bank will hold rates steady in December. Some analysts anticipate a potential 25 basis point increase in January to bring the key rate to 2.75%.

FAQ

Why did wholesale trade decline?

The sector faced a 1.4 per cent drop due to lower vehicle imports and reduced manufacturing activity in the motor vehicle and parts subsector.

How does this compare to previous growth?

The August stagnation follows a period of growth in June, marking a loss of momentum after a strong second quarter for the country's economy.