Economy rebounds in Canada amid wider business reopenings

Bloomberg

Canada’s economy returned to growth as consumers headed back to restaurants and entertainment venues, propelling spending on services.
Gross domestic product rises 0.7% in August, Statistics Canada said in a flash estimate from Ottawa. That’s a reversal from July, which showed a 0.1% contraction, according to the report.
Economists were predicting a 0.2% drop in output for July, after early guidance indicating a weak start to the second half of the year. The agriculture and manufacturing sectors were among the contributors to the decline.
“The GDP report provides a small tonic to the troubling results from a month ago,” Doug Porter, chief economist at Bank of Montreal, said in a report to investors. “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 August figure suggests Canada’s economic recovery is back on track, with consumers leading the way as businesses reopened amid a strong vaccine rollout in the early summer months. While a cool-down in the housing market and supply chain disruptions drove a shock 1.1% annualised contraction in the second quarter, the report supports analysts’ views that consumption, particularly in service sectors, will offset other weaknesses. The food and
accommodation sector and a
rebound in manufacturing contributed to the August gain, even as the agriculture sector suffered from continued drought conditions.
While high-contact sectors still have room to recover, there’s near-term risk Delta variant and a return to schools could prompt a slowdown in consumption if Covid-19 cases tick up again. The expansion in August, though positive, isn’t strong enough to propel quarterly growth near the Bank
of Canada’s 7.3% annualised
forecast for the third quarter.
Based on figures, quarterly GDP is now tracking around 3% annualised, according to Bloomberg calculations. The July and August readings are the last before central bank updates its forecasts at its October 27 policy decision, where it’s expected to taper its asset purchases to $789 million a week from the existing pace of C$2 billion.
“The Bank of Canada will probably be OK with this release,” Nathan Janzen, an economist at Royal Bank of Canada, said by email. “We will still get another labor market report next week, but for now we think this is probably enough to keep an October taper on the table.”