Canada’s economy contracted in August, defying expectations of no growth, as per Statistics Canada data released on Friday. However, an initial estimate suggests that the economy may avoid a recession in the third quarter. The economy shrank by 0.3% in August following a revised report of 0.3% growth in the previous month, canceling out any growth in the current quarter. This marks the fourth contraction in the past five months, driven by declines in both the services and goods sectors.
An early projection indicates that the GDP might expand by 0.1% in September, leading to a total annualized growth of 0.4% in the third quarter, falling short of the Bank of Canada’s forecast. It’s important to note that these estimates are subject to change as more data becomes available. The quarterly estimate is based on industrial output data, while StatsCan will release the annualized quarterly GDP figures based on income and expenditure.
The potential growth in the third quarter, dependent on increased output in September, could prevent Canada from slipping into a recession in Q3. A recession is typically defined by two consecutive quarters of economic contraction.
In the second quarter, Canada’s GDP had shrunk by 1.6% due to the impact of tariffs on steel, cars, lumber, and aluminum, along with trade uncertainties that dampened exports and hindered growth. The Bank of Canada predicted a 0.5% annualized GDP for the third quarter. The manufacturing sector, heavily affected by U.S. tariffs and contributing nearly 10% to the GDP, contracted by 0.5% in August, according to Statistics Canada.
The most significant decline was observed in mining, quarrying, oil, and gas extraction industries, which contracted by 0.7%, primarily driven by decreases in metal ore mining and coal mining. Notable contractions in the services sector were seen in transportation, warehousing, and wholesale trade, partially influenced by an airline strike. However, growth in retail trade, real estate, and rental and leasing sectors helped offset some of the services sector’s decline.