Canada’s economy recovers due to summer reopenings

Canadian economy started showing growth again, as consumers returned to restaurants and entertainment venues, increasing spending on this type of services.

According to Statistics Canada, the GDP was up by 0.7% in August, following a July decline by 0.1%.

Meanwhile, economists expected a 0.2% decrease in July, after a weak beginning of the second half of 2021. The largest drops were reported in the agriculture and manufacturing sectors.

“The latest GDP report provides a slight relief after unpleasant results from a month ago,” – Doug Porter, chief economist at Bank of Montreal, noted. “The smaller-than-expected decline in July and a good gain in August show that the economy managed to create some growth during the summer quarter.”

The August results prove the national economy is back on recovery track, and consumers are driving the growth as businesses reopened amid a strong vaccine rollout. While a slowdown in the real estate market and supply chain disruptions caused an unexpected 1.1% annualized decline in the second quarter, this report supports experts’ opinion that consumption, especially in case of service sectors, will offset other drops. The food and accommodation sector and a recovery in manufacturing contributed to the August increase, despite the drought still affecting the agriculture sector.

Although high-contact sectors still need to keep recovering, there’s a near-term chance that the delta variant and a return to schools may cause another slowdown in consumption if the number of COVID cases goes up again. The growth in August is still not enough to lead quarterly growth close to the central bank’s 7.3% annualized forecast for Q3.

According to Bloomberg, with the recent data, quarterly GDP is tracking around 3% annualized. The July and August reports are the last before the Bank of Canada releases his next rate decision on October 27. The BoC is also expected to reduce the asset purchases from$2 billion to $1 billion (US$789 million) a week.

“The central bank will probably be satisfied with the results”, – Nathan Janzen, an economist at RBC, says. “There will also be a labor market report next week, but in our opinion it may be enough to keep an October reduction on the table.”