Flight attendant strike and drought drive GDP drop, but retail trade posts rare gains in August
Canada’s economy contracted in August, raising fresh questions about the country’s growth outlook as key sectors faltered and early signs point to only modest gains for the third quarter, according to Statistics Canada.
The 0.3 percent decline in real gross domestic product (GDP) offset July’s expansion and marked the fourth contraction in five months, with both goods-producing and services-producing industries posting losses.
Notably, the services sector slipped for the first time in half a year, led by a sharp drop in transportation and warehousing.
A strike by 10,000 flight attendants in August resulted in widespread flight cancellations and a 4.6 percent drop in air transportation, the steepest monthly decline since the pandemic’s Omicron wave, as reported by Statistics Canada.
“One-time factors like drought and the Air Canada labour disruption will be reversed going forward,” said Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategy, as per BNN Bloomberg.
The wholesale trade sector contracted by 1.2 percent, its first drop in four months, led by an 8.3 percent decrease in motor vehicle and parts wholesalers, coinciding with lower exports and imports.
Food, beverage, and tobacco wholesalers also posted their largest monthly contraction since late 2022.
Manufacturing, a sector especially sensitive to tariffs, declined 0.5 percent in August, according to Statistics Canada.
“The manufacturing sector, which is the hardest hit due to US tariffs and accounts for almost a tenth of the GDP, contracted by 0.5 per cent in August,” CBC News reported.
Mining, quarrying, and oil and gas extraction fell 0.7 percent, with metal ore mining and coal mining seeing the steepest drops. However, oil and gas extraction edged up 0.2 percent on increased crude petroleum output in Alberta and Newfoundland and Labrador.
Drought conditions weighed on the utilities sector, which contracted 2.3 percent as hydroelectric power generation continued to decline for a sixth consecutive month.
Retail trade provided a rare bright spot, expanding 0.9 percent in August, led by gains in motor vehicle and parts dealers, general merchandise stores, and clothing retailers.
Looking ahead, Statistics Canada’s advance estimate suggests real GDP increased by 0.1 percent in September, with gains in manufacturing, finance and insurance, and resource extraction partially offset by further weakness in wholesale and retail trade.
This would bring third-quarter annualized growth to 0.4 percent, just below the Bank of Canada’s forecast.
According to BNN Bloomberg, Oxford Economics senior economist Michael Davenport observed that the economy “will struggle to grow in the near term and remain vulnerable to further trade-related disruptions.”
He added, “there’s a ‘small chance’ of another rate cut or two if the labour market and GDP figures undershoot the central bank’s expectations”.
