Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the monthly GDP shows that economic activity remains sluggish despite being slightly stronger than expected in July. As such, economic activity is estimated to have increased by a meagre +1.2% q-o-q ar in 2024Q3, well below the Bank of Canada’s expectations in the July Monetary Policy Report.
With inflation below the upper band of the inflation target of 3% for some months, the Bank of Canada has shifted its focus away from inflation to the downside risks to the economy. Moreover, recent comments from Governor Macklem suggest two things: 1) the door is wide open to a 50bp and the hurdle to make a bigger cut is not as high as we thought, and 2) the BoC could be considering bringing its policy rates towards neutral faster than we expected. With this in mind, we believe that the BoC is likely to decide to accelerate the removal of the monetary tightening and cut by 50bp in October. However, faster cuts will not necessarily translate into deeper cuts.
For Alberta, the details available in the report suggest that economic activity likely underperformed the rest of the country in June due to lower activity in oil and gas extraction and the devastating wildfires that swept through Jasper. Nevertheless, economic activity in the province remains supported by strong population growth and the tailwinds from high oil revenues, but not as much as in the past decade (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened).
The monthly GDP increased 0.2% in July (+1.1% y-o-y), slightly better than expectations. The details show that 13 of 20 industrial sectors posted gains on the month. Despite the overall economy being 5.5 percentage points above its pre-pandemic level, 6 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely utilities, transportation and warehousing, management of companies, administration and support services, and accommodation and food services.
Statistics Canada’s preliminary estimate shows that GDP flat in August. This suggests that growth in the third quarter of 2024 is likely to be around +1.2% q-o-q ar., weaker than in both Q1 and Q2. Moreover, growth in the third quarter is also expected to be well below what the BoC had in its MPR in July at 2.8%.
The goods-producing side of the economy increased 0.1% m-o-m in July. Higher activity in utilities (+1.3% m-o-m), agriculture (+0.6% m-o-m) and manufacturing (+0.3% m-o-m) was partly offset by a decline in construction (-0.4% m-o-m) and natural resource extraction (-0.2% m-o-m), especially the oil and gas sector (-1.8% m-o-m).
The services-producing side of the economy rose by 0.2% in June. Higher activity in retail trade (+1.0% m-o-m), finance and insurance (+0.5% m-o-m), wholesale trade (+0.4% m-o-m), arts, entertainment and recreation (+0.4% m-o-m), and public administration (+0.4% m-o-m). These gains were partly offset by a decline in transportation and warehousing (-0.4% m-o-m), information and culture (-0.7% m-o-m), and other services (-0.2% m-o-m).
Statistics Canada also notes that wildfires had an important impact on economic activity in July, causing a drag on the transportation sector, especially rail, accommodation service and mining in Quebec and Labrador.
For Alberta, there is no specific data in the report. However, we can make an assessment based on activity in some key industries specific to Alberta. The weaker activity in oil and gas extraction and the wildfires in the Rockies that spread through Jasper suggest that Alberta likely underperformed the rest of the country in June.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.