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 a preliminary number suggesting higher activity in September. As such, economic activity is estimated to have increased by a meagre +1.0% q-o-q ar in 2024Q3, well below the Bank of Canada’s expectations in the October Monetary Policy Report. This would imply another decline in GDP per capita in the third quarter.
With inflation no longer a concern for the BoC, with both headline and core measures within the target band, the continued lacklustre economic performance points to the need for further rate cuts. While the increase in activity in September could point to some improved activity going into the end of the year, some of the improvement is likely a reversal of the weakness seen in August and may not be sustained. As such, we believe that the BoC should return its policy rate closer to neutral rapidly (see Faster cuts do not mean deeper cuts), as it is clear that the Canadian economy no longer requires a tight monetary policy. This is especially true in light of the expected economic impact of the recently announced reduced immigration targets and their effects on population growth (see). Hence, we still believe the BoC should cut its policy rate by 50bp in December. Whether the BoC cut by 25bp or 50bp depends on incoming data, especially the next labour force surveys and CPI report.
For Alberta, the details available in the report suggest that economic activity likely outperformed the rest of the country slightly in August due to higher activity in oil and gas extraction, pipeline activity and agriculture. 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 was flat in August (+1.3% y-o-y), in line with expectations. The details show that 12 of 20 industrial sectors posted gains on the month. Despite the overall economy being 5.4 percentage points above its pre-pandemic level, 7 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely utilities, construction, transportation and warehousing, management of companies, administration and support services, and accommodation and food services.
Statistics Canada’s preliminary estimate shows that GDP rose by 0.3%. This suggests that growth in the third quarter of 2024 is likely to be around +1.0% q-o-q ar., weaker than in both Q1 and Q2 and also below the Bank of Canada’s forecast of 1.5% from the October MPR.
The goods-producing side of the economy dropped 0.4% m-o-m in July. Lower activity in manufacturing (-1.2% m-o-m), due to retooling and maintenance activities, and in utilities (-1.9% m-o-m) were the main declines. These declines were partly offset by increases in natural resources extracted (0.6% m-o-m), especially oil and gas (+1.5% m-o-m), agriculture (+0.4% m-o-m), and construction (-0.3% m-o-m).
The services-producing side of the economy rose by 0.1% in August. The increase came mainly from higher activity in finance and insurance (+0.5% m-o-m), public administration (+0.5% m-o-m), retail trade (+0.6% m-o-m), and health care (+0.2% m-o-m). These gains were partly offset by a decline in wholesales (-0.6% m-o-m), and transportation and warehousing (-0.3% m-o-m).
Statistics Canada notes that the decline in transportation was mainly due to rail transportation (-7.7% m-o-m) due to disruptions to activity caused by the rail lockout at Canada’s main rail carriers and the collapse of a bridge in the Thunder Bay area.
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 higher activity in oil and gas extraction, albeit mainly concentrated in conventional oil, pipeline activity, and agriculture, suggests that the Alberta economy likely outperformed the rest of the country slightly.
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Independent Opinion
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