Canada: Outlook Positive But Largely Unchanged

Output-based GDP growth for August surprised on the upside as the economy consolidated July’s gains. Growth advanced by 0.3% (m-o-m) on the back of a 0.6% jump (which was in turn payback for June when adverse factors, including floods in Alberta and a Quebec construction strike, caused GDP to decline). Both the goods-producing and service industries were on a roll, with the former boosted by mining, quarrying oil & gas extraction (up 1.9% m-o-m) and energy (also up 1.9%). As a result, industrial production was solid, increasing by 0.5% although this was half July’s 1.0% gain. Manufacturing disappointed, falling by 0.3% following July’s impressive 0.9% outturn. Durables offered little support to manufacturing while non-durables output dropped by 0.7%. Still, goods-producing industries received an additional fillip from agriculture, forestry & fishing, while the modest gain in services was fairly broad-based. All in all, the August GDP report suggests that Q3 is on track. The main concern regarding the outlook is the prevailing weakness in exports. After a shaky month on the US fiscal front, and the Euro zone still struggling with a limp recovery, global weaknesses continue to linger. Indeed, manufacturing sales fell by 0.2% (m-o-m) in August following a 1.7% increase in July as new orders barely increased by 0.1%. The 2014 outlook for both GDP and industry remains positive but largely unchanged.

The Bank of Canada modified its Q3 GDP forecast from 2.5% (q-o-q annualized) to 2%, citing economic slack and concern over inflation (which stood at 1.1% y-o-y in September, persisting below target). The Bank of Canada kept rates on hold at its last meeting but dropped references to tightening and normalization of interest rates.


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