Growth momentum remains weak

Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud. 

Bottom line

Today’s release of the monthly GDP suggests that the momentum in the Canadian economy remains weak going into the second half of 2023. As such, with the preliminary estimate for August suggesting activity increased by a modest 0.1% m-o-m, growth in the third quarter will likely be below 0.5% q-o-q ar.

While many temporary factors have affected the Canadian economy (public sector strike, port strike and forest fires), blurring somewhat the underlying strength of the economy, it is clear that the economic momentum is weak. Interestingly, many sectors linked to consumer discretionary spending, namely accommodation and food services, arts, entertainment and recreation, and real estate, remain robust, showing that household spending remains resilient. This is partly supported by strong population growth and a continued robust labour market.

The Bank of Canada will welcome the slower momentum, as it suggests a further decrease in the excess demand in the economy. Nevertheless, with the upside surprise in inflation, the risk of another rate hike this year remains high and likely dependent on the next CPI releases.

For Alberta, the details available in the report suggest that economic activity likely increased in July due to a rebound in activity in the oil and gas sector after being affected by the forest fires and its impact on related sectors. High energy prices have been a tailwind to the Alberta economy this year, but not as much as in the past (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened). However, the continued strong population growth in the province continues to push economic activity higher.

The monthly GDP was flat in July(+1.1% y-o-y). The details show that 9 out of 20 industrial sectors posted gains on the month. Despite the overall economy being 3.5 percentage points above its pre-pandemic level, 9 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely agriculture, utilities, construction, wholesale trade, transportation and warehousing, management of companies, administration and support services, arts, entertainment and recreation, and accommodation and food services.

Statistics Canada’s preliminary estimate suggests GDP for August increased by 0.1% m-o-m. This suggests that growth in the second quarter of 2023 should be around 1.0% q-o-q ar.

The goods-producing side of the economy decreased by 0.3% m-o-m in July. Economic activity declined in manufacturing (1.5% m-o-m), agriculture (-1.5% m-o-m) and utilities (-0.2% m-o-m). A rebound in natural resource extraction (+1.8% m-o-m), following the disruption due t the forest fires, partly offser these declines, while construction was flat on the month.

The services-producing side of the economy rose 0.1% in June. The increase in activity was mainly driven by accommodation and food services (+2.3% m-o-m), finance and insurance (+0.3% m-o-m), public administration (+0.3% m-o-m). Declines in transportation and warehousing (-0.2% m-o-m), mainly due to the impact of the strike at the Port of Vancouver and a decline in air transportation. There were also declines in retail trade (-0.2% m-o-m), professional, scientific and technical (-0.2% m-o-m) and other services (-0.1% m-o-m). l

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 level of activity in the oil and gas and pipeline sectors bounced higher on the month, as production normalized after being affected by the forest fires in the province. A decline in agriculture, the night consecutive contraction, and in pipeline activity may have acted as a drag on growth. Overall, this means that the province’s economy likely outperformed the rest of the country in July.

Independent Opinion