Canada’s economic growth comes in stronger than expected

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The twenties have yet to roar as many predicted they would, but high vaccination rates appear to have delivered a decent rate of economic growth this summer.

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Statistics Canada reported on Oct. 1 that gross domestic product dropped 0.1 per cent in July, an improvement on the agency’s preliminary estimate, which had foreshadowed a 0.4-per-cent decline. Thirteen of the 20 industrial sectors that Statistics Canada monitors posted gains, led by hotels and restaurants, which posted double-digit growth for the second consecutive month.

To be sure, the rush of Canadians back to their favourite eateries and vacation destinations wasn’t enough to offset the struggles of a handful of important industries. Construction activity stumbled, but from record levels. Manufacturing declined, as automobile and auto-parts makers struggled to gather parts amid post-pandemic supply shortages. Farmers on the Prairies, who last year benefited from surging commodity prices, are now coping with the effects of a major drought.

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Still, the economy appears to have pushed through those headwinds. Statistics Canada’s flash estimate of GDP in August suggests the economy rallied, growing 0.7 per cent. That would be a strong result, as Canada’s economy tends to grow at a monthly rate of about 0.2 per cent, the average in data that date to 1997. It would also put the economy on track to outpace the Bank of Canada’s muted expectations for the third quarter, suggesting policy-makers will continue with plans to reduce their purchases of federal debt as early as the end of the month.

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“Today’s GDP report provides a small tonic to the troubling results from a month ago,” Douglas Porter, chief economist at Bank of Montreal, wrote in a note to his clients. “The slightly smaller-than-expected setback in July and nice pop in August suggest that the economy managed to grind out some moderate growth in the summer quarter as a whole.”

The economy contracted in the second quarter, a setback that few saw coming at the start of the year. The latest GDP readings indicate the economy will avoid a double-dip recession, as the economy appears to have enough momentum to avoid a second consecutive quarterly contraction.

“Further reopening across the country fuelled a very strong rebound in high-touch services,” said Sri Thanabalasingam, an economist at Toronto-Dominion Bank. “This strength continued into August and is a key reason for Statistics Canada’s healthy flash GDP estimate for that month.”

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