Canada’s GDP growth on track to match U.S.

Economists expect good news in July numbers

OTTAWA • If you blinked, you might have missed it.

But Canada’s economy appears to be turning a corner — away from a technical recession and toward a sustainable growth path.

The pace may not be consistent, at the moment, but the numbers are starting to add up to a third-quarter gain after two consecutive declines in the first half of 2015.

In fact, the growth rate of the gross domestic product — the measure of all goods and services produced in this country — could be close to, or even matching, that of the United States between July and September.

Most forecasters expect the current quarter’s output to come in anywhere from 1.5 per cent — in line with the Bank of Canada’s most recent estimate — to about 2.8 per cent.

Quite a turnaround from declines of 0.8 per cent in Q1 and 0.5 per cent in Q2, which met the broad definition of a recession. The next key economic numbers will come Wednesday, with the release of GD P figures for July.

“Recent economic data on external trade, manufacturing sales, wholesale and retail sales and oil rig drilling activity have been mixed,” said David Madani, the Canadian economist at Capital Economics.

“Taking all these into account, we estimate that the economy grew by 0.1 per cent (in July),” he said. “If this is correct, it would point to thirdquarter annualized GDP growth of somewhere between 1.5 per cent and two per cent.”

Other forecasters — including those at Bank of Montreal and Canadian Imperial Bank of Commerce — expect the July GDP number to be closer to 0.2 per cent, leading to an even bigger Q3 recovery.

“We’re looking for a mediocre 0.2-per-cent (July) gain, held back by disappointments in wholesaling and non-auto retailing,” said Avery Shenfeld, CIBC’s chief economist.

“But that builds on a healthy June gain, and still leaves the quarter pointing to a 2.7-per-cent annualized growth rate.”

BMO is calling for slightly larger growth of 2.8 per cent between July and September, which also matches its Q3 forecast for the United States, the world’s largest economy and Canada’s No. 1 trading partner.

“And there’s a very good chance that Canada actually may have grown a little bit faster than the U.S. in the third quarter,” said Douglas Porter, BMO’s chief economist.

“The drag from the oil and gas sec- tor, while it isn’t lightening up, it’s not getting worse.

So, we’ve basically absorbed the huge negatives in the first and second quarter. And now they’re not pulling down growth even further now.”

Momentum seems to be mounting behind those improved forecasts.

One indicator is Canada’s strengthening fiscal position — reflected in Friday’s report by the Finance Department that showed the federal government posted a $150-million surplus in July, compared with a $1.23-billion deficit in the same month in 2014, and pointing to the possibility of Ottawa posting a second fiscal surplus in a row.

That’s news the Conservative government welcomes ahead of the Oct. 19 national election, a vote in which all political parties have pushed the economy to centre stage after the global collapse in oil prices pummelled Canada’s resource-dependent provinces and dragged the country as a whole into the first recession since 2008-09.

“I don’t tend to read much into the (Finance Department) releases early in the fiscal year,” said CIBC’s Shenfeld.

“There are sharp differences in timing of payment and revenues, so you can’t really tell much from the year-on-year changes until you are more than half way through.

“Even then, there’s a lot of slippage.”

But Porter at BMO said “the fact is that we are in a surplus in the first four months of the year versus what had been a small deficit a year ago.”

“As this stand now, we’re on track for a surplus this year, unless the wheels absolutely fall off.

And based on the July numbers, there’s no indication that’s happening.”