By Promit Mukherjee
OTTAWA (Reuters) -Canada’s gross domestic product contracted in August against widespread expectations of no growth, data showed on Friday, but an advance estimate suggested the economy might escape a recession in the third quarter.
The economy shrank by 0.3% in August following upwardly revised growth of 0.3% in the prior month, Statistics Canada said, which effectively nullifies any growth so far in the current quarter.
This was the fourth monthly contraction in five months and was led by a drop in output in both the services and goods sectors, it said.
An advance indicator suggested that the monthly GDP would likely expand by 0.1% in September, taking the total annualized growth of the third quarter to 0.4%, missing Bank of Canada’s forecast.
The advance estimate is not always accurate and could change. The annualized quarterly estimate is based on industrial output data while StatsCan will publish the annualized quarterly GDP based on income and expenditure.
A likely growth in GDP in the third quarter, which hinges on the economy boosting its output in September on an aggregate basis, means Canada could avoid slipping into recession.
Two quarterly contractions in a row are considered to constitute a recession.
Canada’s GDP had shrunk in the second quarter by 1.6% as the impact of tariffs on steel, cars, lumber and aluminum, and general trade uncertainty reduced exports and hurt growth.
The Bank of Canada said this week that third-quarter annualized GDP growth was likely to be 0.5%.
The Canadian dollar weakened further after the data and was trading down 0.27% at 1.4022 to the U.S. dollar, or 71.32 U.S. cents. Yields on two-year government bonds dropped by 1.5 basis points to 2.397%.
The manufacturing sector, which is the hardest hit due to U.S. tariffs and accounts for almost a tenth of the GDP, contracted by 0.5% in August, data from StatsCan showed.
The biggest drop, however, was seen in mining, quarrying and oil and gas extraction, which contracted by 0.7%, primarily due to a 1.2% drop in metal ore mining and a 5% drop in coal mining, StatsCan said.
Within the services sector, the main contractions were seen in transportation and warehousing, in part because of an airline strike, as well as wholesale trade.
However, growth in retail trade and real estate and rental and leasing helped offset some of the drop in the services sector.
(Reporting by Promit Mukherjee; Editing by Dale Smith and Andrea Ricci)
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