The headline number for Canada's GDP in July, released this morning by Statistics Canada, was surprising. Real GDP fell 0.1 percent in the month, leaving the economy about 2 percent smaller than it was when the pandemic began. StatsCan had already reported strong employment growth for the month, and July saw COVID restrictions eased in most Provinces, so it was reasonable to expect a more positive outcome. However, a look behind the headline is reassuring: it is highly unlikely that the decline in GDP recorded in the second quarter will be repeated in Q3.
Of twenty industrial sub-sectors covered by StatsCan's data, thirteen posted higher output in July. It is no surprise that the strongest gains were seen in sectors that had been hardest-hit by pandemic lockdowns earlier in the year. Accommodation and food services posted a second consecutive double-digit gain in the month, and the arts, recreation and entertainment sector was not far behind. These gains were offset by weakness in agriculture, largely the result of drought conditions in the Prairie provinces, as well as declines in utilities and manufactures. The fall in manufacturing output was concentrated in durable goods, suggesting that the global semi-conductor shortage again played a role. Retail trade was also slightly weaker in the month.
StatsCan has provided a preliminary estimate for real growth in August, indicating a 0.7 percent gain for the month. Further strength in accommodation and food and a rebound in manufacturing and retail trade are seen as the main contributors to growth partly offset by continuing drought-related weakness in agricultural output. Although some Provinces, notably Alberta and Saskatchewan, saw a worrying rise in COVID cases in September, there has been no reimposition of significant restrictions anywhere in the country, suggesting that the growth seen in August likely continued through the end of the third quarter.
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