Slowdown in Oil and Gas Sector Stalls Canadian Output in July
Canada’s economy unexpectedly stalled in July, a result that could raise concern the nation isn’t immune to the broader global slowdown.
Gross domestic product was unchanged in July from a 0.2% gain in June, Statistics Canada said Tuesday from Ottawa. The figure missed a 0.1% gain expected in a Bloomberg Survey of economists. A drop in oil and gas extraction was the main contributor to the slowdown in GDP, falling 3% in July, the largest monthly decline since 2016.
The latest GDP reading may stoke worries about a sharper than expected slowdown in the second half of the year, and increase pressure on the Bank of Canada to cut rates. While Canada saw growth accelerate in the second quarter to an annualized pace of 3.7%, some of the strength was temporary. There are also worries mounting global economic uncertainty is beginning to weigh on Canada’s expansion. Economists anticipate second half growth will slow to about 1.5%.
“This adds to our anticipation that the Bank of Canada’s next move will be a cut in rates after poor growth in three of the last four quarters,” said Brett House, deputy chief economist at Scotiabank.
Markets aren’t so sure and are only pricing in a 10% chance the bank will cut during October’s monetary policy report.
”If it weren’t for the drag from the energy/mining sector, we’d have had a repeat of June’s solid performance, even with the relative lack of growth breadth,” said Brian DePratto, senior economist at Toronto-Dominion Bank. “If you’re looking for generalized weakness in Canada’s economy, today’s report ain’t it.”
- It’s the first print of the third quarter and the result surprised to the downside, and was the fourth straight month growth either decelerated or was flat
- A slowdown in mining, quarry and oil and gas extraction was responsible for the majority of the decline, contracting 3.5% in July; the largest decrease for the industry since May 2016
- The decrease was isolated to 7 of the 20 sectors recording lower output
Canada’s currency fell after the report was released, and was trading down 0.3% at C$1.3281 against its U.S. counterpart at 8:55 a.m. Toronto time.
- The shutdown of some of Newfoundland and Labrador’s offshore production facilities for maintenance issues negatively impacted oil and natural gas activity in July
- Other sectors contributing to the month’s weak figures include manufacturing, down for the second straight month, and construction
- Positive additions to GDP were wholesale trade, which rose 1.1%, led by personal goods and motor vehicles
- On an aggregate basis, goods-producing industries dropped 0.7%, the second consecutive decline, while services-producing sectors repeated June’s expansion, rising 0.3%
- On an annual basis, output rose 1.3% in July
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