Canadian Monthly GDP (July 2021)

GDP contracts in July, but rebound expected in August

• The Canadian economy contracted in July as GDP declined by 0.1% month-on-month, a touch above the consensus call for -0.2%. This left GDP around 2% below its pre-pandemic (February 2020) level.
• In addition to July GDP, Statistics Canada released a flash estimate for August, which showed a 0.7% increase in output for the month.
• By industry, gains in services-producing (+0.4%) industries were more than offset by declines in goods-producing (-1.4%) areas of the economy. The strongest advance was in accommodation and food services (+12.5%) as provinces continued to lift public health restrictions in July. The arts, entertainment and recreation sector also benefited from reopening measures with output rising 8.1% on the month. Another top performer was transportation and warehousing (+1.1%), which was boosted by greater domestic and international air travel. 
• On the flipside, record-setting heat and drought conditions in Western Canada resulted in a 5.5% decline in agriculture, forestry, fishing and hunting output. Crop production dropped 13.2% in July. Manufacturing output (-1.1%) also fell due to declines in durable-goods manufacturing which could have been held back by supply shortages. GDP contracted for a third consecutive month for the construction industry (-0.9%) in July as residential building activity (-2.7%) continued to cool that month. Wholesale trade (-1.9%) was another industry to suffer a decline in July.          

Key Implications

• It was a lacklustre July for the Canadian economy. Extreme heat weakened agricultural production, while manufacturing and wholesale trade were likely weighed down by supply shortages. Cooling housing activity hit construction output. Excluding these sectors, GDP would have improved by 0.3% in July.
• Indeed, further reopening across the country fueled a very strong rebound in high-touch services (i.e. accommodation and food services and arts, entertainment and recreation) as Canadians reoriented their spending from goods towards activities that had long been restricted to them. This strength continued into August and is a key reason for Statistics Canada's healthy flash GDP estimate for that month.   
• So, it appears the Canadian economy ended the summer on a high note, but the fall season could lower the octave. Cooling weather and the resurgence of the pandemic (already occurring in Alberta and Saskatchewan) could dampen enthusiasm for recreational activities. At the same time, Canadians are likely to not redirect spending toward goods, an area which they had indulged during most of the pandemic (see report). This could test the resilience of the economy in the months ahead.              

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