Canadian Economy Stalls in July After Eight Months of Growth

09/29/17 09:11 AM EDT
By Paul Vieira 

OTTAWA -- Canadian economic output stalled in July after eight straight months of gains, bringing an end to an exceptional run that powered the fastest growth among Group of Seven economies in the past year and spurred the Bank of Canada to raise interest rates twice in recent months.

The level of Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, was largely unchanged in July versus the previous month, sitting at 1.74 trillion Canadian dollars ($1.40 trillion), Statistics Canada said Friday. Market expectations were for GDP growth of 0.1% in July, according to economists at Royal Bank of Canada.

Nevertheless, on a one-year basis, GDP rose by a still-robust 3.8%.

Declines in energy production and the steepest fall in financial-services output in over two years offset a strong performance in July from the wholesale sector, and an increase in hours worked in the public sector.

Overall, the goods-producing side of the economy fell 0.5% from the previous month, while the services sector recorded a 0.2% advance.

oJuly's GDP report could reinforce a consensus developing among market watchers that the Bank of Canada holds off on another rate increase at its next policy meeting on Oct. 25. Canada's central bank raised its benchmark rate in July and early September, arguing that growth was now more broadly based and self-sustaining, and the amount of unused production and labor capacity was shrinking.

Bank of Canada Governor Stephen Poloz said this week in a speech that recent economic indicators "point clearly" to a slowdown in the pace of growth in the second half of 2017. He said henceforth, the central bank would be working from a clean slate on future rate-policy decisions. "There is no predetermined path for interest rates from here," Mr. Poloz said, adding the Bank of Canada policy decision would be "particularly data dependent."

July's GDP report suggests the economy took a breather after roaring growth in the first half of 2017, as output grew on an annualized basis by 3.7% and 4.5%, respectively, in the first and second quarters. Other data this week indicate optimism among business owners and executives has dimmed.

The Canadian Federation of Independent Business's business-barometer index, which is a gauge measuring confidence among country's small and midsize firms, fell for a fourth straight month in September and hit an 18-month low. For the first time in over eight years, firms in all 10 provinces recorded a decline in confidence. "Clearly the small-business sector is chilled right now," said Ted Mallett, the federation's chief economist.

Friday's GDP report indicated that energy-sector output fell 0.8% in July to C$172.40 billion, which the data agency attributed to declines in conventional and nonconventional oil extraction. On a 12-month basis, energy output rose 11.6%.

Factories, which have generally been on a roll since the second half of last year, recorded a 0.4% decline to C$181.43 billion, due mostly to decisions by auto makers to close plants for maintenance and retooling. On a one-year basis, manufacturing rose 3.7%

Wholesale trade activity, in contrast, rose 2% in July to C$105.88 billion, or the strongest advance in almost three years. Wholesaling is the largest component of Canada's services economy.

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

September 29, 2017 09:11 ET (13:11 GMT)

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