Canadian economic growth slows in August, goods sectors gain

OTTAWA (Reuters) - The pace of Canadian economic growth slowed as expected in August, data from Statistics Canada showed on Tuesday, reinforcing expectations that the Bank of Canada will maintain its cautious stance.

An FCA assembly worker works on the production line of the all-new 2017 Chrysler Pacifica minivan at the FCA Windsor Assembly plant in Windsor, Ontario, May 6, 2016. REUTERS/Rebecca Cook

The 0.2 percent advance was in line with a Reuters poll of economists. July’s growth was revised lower to 0.4 percent from an initially reported 0.5 percent increase.

While that supported expectations that the economy bounced back in the third quarter, economists expect the strength of the rebound will wane in the final quarter of the year. The economy contracted in the second quarter due to the impact of wildfires in Alberta.

Much of August’s output growth came from goods-producing sectors, including mining and construction. Activity in the mining, quarrying and oil and gas extraction sector rose 1.4 percent, driven by a surge in potash mining due to higher exports for the commodity.

Oil and gas extraction rose 0.9 percent as production capacity returned to levels seen before maintenance shutdowns in April and wildfires in northern Alberta in May.

Derek Holt, head of capital markets economics at Scotiabank, said the breadth of activity in August was not strong.

“(The Bank of Canada) will take it with a bit of a cautious optimism slant to it, but there are enough red flags in terms of the underlying details to reaffirm their cautious stance of late,” said Holt.

The Canadian dollar weakened slightly against the greenback following the data. [CAD/]

The oil-oriented Canadian economy has struggled to gain sustainable momentum since it was hit by a drop in crude prices last year. Growth is seen cooling to 1.5 percent in the final quarter of the year.

The central bank opted last month to hold interest rates steady, though it acknowledged it had considered cutting for the third time in two years.

Tuesday’s figures leave third-quarter growth on track to come in at slightly over 3 percent, in line with the Bank of Canada’s 3.2 percent forecast, said Avery Shenfeld, chief economist at CIBC Capital Markets.

Gains in construction and manufacturing also contributed to economic growth. Construction activity rose for the first time in five months, lifted by an increase in residential building.

Utilities jumped 2.4 percent, lifted by demand for electricity as parts of Canada experienced unusually warm weather in August.

Overall, activity in the goods-producing sectors of the economy rose 0.7 percent, while the service sector was unchanged.

Additional reporting by Fergal Smith in Toronto; Editing by Jeffrey Benkoe and Meredith Mazzilli