Economy picked up steam in July
New StatsCan report suggests Canada well on its way to recovery in third quarter
Canada’s economy grew 0.3 per cent in July, the second monthly gain in a row, providing further proof the country is climbing out of the mild recession in the first half of the year.
Goods-producing industries, including mining, oil and gas and manufacturing, led the gains, Statistics Canada said, which come on top of June’s downwardly revised 0.4-percent increase in the gross domestic product.
The report is the last before voters go to the polls on Oct. 19 in a federal election campaign that has been dominated by a debate about how to boost Canada’s economic performance. The data provides fresh evidence the world’s 11th largest economy is well on its way to a strong third-quarter performance as it recovers from the oil price shock and severe winter weather that dogged the start of the year, economists said.
“After a growth stumble in the first part of the year, the economy appears to be picking itself back up,” Nick Exarhos, an economist at CIBC World Markets in Toronto, wrote in a note to clients.
“Overall, the release of July’s GDP provides further evidence that the worst of the soft patch is behind us,” Diana Petramala, economist at TD Bank, wrote in a note to clients.
However, it’s unclear if the gains in July will be sustainable, as the G7’s largest oil exporter continues to be challenged by low oil prices, economists also said.
Prime Minister Stephen Harper, who has been touting his government’s track record, was quick to cite July’s growth is proof his government’s strategy is working. “Our lowtax, pro-trade, Economic Action Plan is helping Canada’s economy grow,” Harper said in a statement Wednesday. “Now is not the time for higher taxes or permanent deficits.”
Opposition parties say Harper’s Conservatives have relied too heavily on Canada’s energy industry at the expense of other sectors.
Liberal Leader Justin Trudeau has proposed raising taxes on higher-income earners and cutting them for the middle class as well as running up three years of deficits to boost infrastructure spending. The New Democrats’ Thomas Mulcair has said Harper’s policies have cost Canada 400,000 manufacturing jobs. He’s promised to balance the budget while cutting small business taxes and creating new daycare spaces.
While the data confirms Canada is on track for a stronger third quarter, much of July’s report was skewed by a couple of one time gains, economists noted. Alberta’s oilsands industry jumped 9.1 per cent in July as it made up for losses due to maintenance shutdowns and wildfires in April and May.
The rest of the oil and gas sector continues to be dragged down by oil prices, with major producers cutting investments and jobs as the price of crude plunged by more than half from the $100 U.S. a barrel peak seen in June 2014.
“Given where (oil) prices are, and the significant slowdown in the energy sector, further meaningful gains aren’t particularly likely,” BMO senior economist Benjamin Reitzes wrote in a note to clients.
Another boost in July came from a retroactive increase in the Universal Child Care Benefit that gave Canadian parents an estimated $3-$4 billion in extra spending money, economists said.
Manufacturing rose 0.6 per cent, bolstering hopes the sector is finally benefitting from a low Canadian dollar and rising U.S. demand, especially for autos.
Bank of Canada governor Stephen Poloz has been counting on exports to drive future growth, and has twice cut the bank’s trendsetting interest rate to 0.5 per cent to offset the impact of plunging oil.
Jim Stanford, chief economist with Unifor, the country’s largest private sector union, cautioned against reading too much into July’s report.
“In my view it is too early to conclusively declare the recession over,” Stanford wrote in a blog. The numbers reflect a major rebound in oil production, “but they do not yet indicate an economy-wide recovery,” he noted.
Meanwhile, in New York, Canadian economist David Rosenberg lent weight to the argument the federal government needs to be stimulating the economy rather than cutting taxes and balancing budgets.
“Canada has to embark — at the federal level — on far more aggressive strategies beyond just having corporate tax rates edge lower, towards creating incentives to really build the infrastructure,” said Rosenberg, chief economist at Gluskin Sheff + Associates.