Canada’s economy grew for a third straight month in August, but at a much slower pace foreshadowing a more sluggish growth in the future.
Manufacturing, mining, quarrying, and oil and gas extraction and retail trade all expanded, Statistics Canada reported. Over all, eight of 11 major industry segments posted gains, RCInet reported.
The data agency reported that the GDP adjusted for inflation rose by 0.1% in August, following growth of 0.3% in July and 0.4% in June.
“Though growth is muted, there is fairly broad breadth to the gains with only two sectors meaningfully dragging on growth,” Scotiabank said. It singled out finance and insurance and wholesale trade for much of the weakness affecting Canada’s economy.
Economists predict the August growth keeps the economy on track for third-quarter expansion of about an annualized 2.5% pace, which would be the strongest quarter in a year.
But while that represents a solid rebound from the economic contraction of the first half of the year, experts suggested that August’s relatively slow growth may be more like what Canadians should expect in the fourth quarter and into 2016, as the aftershocks from the oil slump persist.
Budget Deficit
If growth weakens further in the coming months, the promise of billions of dollars in stimulus spending—in other words, deficits—by the incoming Liberal government might just come in handy.
If prime minister-designate Justin Trudeau and his cabinet, who will be sworn into office on Wednesday, “carry through with the goal to raise the budget deficit to $10 billion, that could add as much as half a percent to growth next year,” said Douglas Porter, chief economist at BMO Capital Markets.
In fact, Trudeau plans to pour an additional $10 billion into the economy over two years—and a little bit less in a third year—piling up annual deficits along the way.
“While we would quarrel—perhaps strenuously—with the spending-heavy nature of the plan, the moves would give at least a temporary lift to growth … and run in the precise opposite direction of federal restraint of the past five years,” Porter said.
For this year, he added, “we have not adjusted our forecast—yet. But the pen is at the ready, if and when those policies are budgeted. That’s a question mark.”
One thing is more certain: We can’t continue to rely on the Bank of Canada to do the heavy lifting. After two interest rate cuts already this year, monetary policymakers are in a wait-and-see mode — watching the pace of recovery in the US and ready to adjust their forecasts when, and by how much, the Liberals deliver on their promise.
