Canada GDP seen rising through August, but COVID-19 resurgence risk ahead

OTTAWA (Reuters) - The Canadian economy continued to expand in July and August, clawing back from a steep drop due to the coronavirus pandemic, though the pace of growth slowed through the summer, Statistics Canada data and estimates showed on Wednesday.

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Real GDP rose 3.0% in July, in line with analysts’ expectations, but below June gains of 6.5%, as all 20 industrial sectors posted increases.

August GDP, meanwhile, is expected to increase by 1.0%, Statistics Canada said in a preliminary flash estimate.

The economy still remains below pre-pandemic levels and a recent uptick in COVID-19 cases is raising concerns over fresh containment measures.

The Canadian dollar CAD= was trading 0.2% higher at 1.3366 to the greenback, or 74.82 U.S. cents, after the data.

“While there may be some disappointment with the August growth estimate of 1%, decelerating momentum should be fully expected,” said Benjamin Reitzes, Canadian rates and macro strategist with BMO Capital Markets, in a note.

“Perhaps the bigger concern is that a second wave of COVID cases could prompt another round of shutdowns, or a broader slowing in activity, when the economy still faces a deep hole to dig out of,” he added.

Canada reported 1,660 new COVID-19 cases on Sept 29, taking the total to 156,961. Canada’s two largest provinces, where new infections have surged to spring levels, pledged measures this week to slow the second wave.

July’s GDP gains included big increases for the accommodation and food service sectors, which benefited from summer travel, patio service and restaurant reopenings.

All 20 industrial sectors posted increases in July, with the goods-producing industries gaining 3.2%, while the service-producing industries grew by 3.0%.

With the summer gains, third-quarter annualized GDP growth is on track to increase at more than 40%, said Nathan Janzen, senior economist with RBC Economics, in a note.

“But the level of activity overall was also still running almost 5% below pre-shock levels,” he added.

Reporting by Julie Gordon in Ottawa, additional reporting by Steve Scherer in Ottawa and Fergal Smith in Toronto; Editing by Andrew Cawthorne and Nick Zieminski