Canada’s economy had one of the best months in years in July, rebounding strongly from a June swoon and returning the economy back to the path of moderate growth.
Statistics Canada reported Monday that gross domestic product in July advanced an encouraging 0.6 per cent during the month, wiping out half-point setback in June that was mostly attributed to a two-week construction strike in Quebec and flooding in Alberta.
The bounce — one of the biggest since the recession — was one-tenth of a point better than economist expectations, and set up the economy for a stronger third quarter.
But analysts noted the acceleration is unlikely to match the Bank of Canada’s expectation of a 3.8 per cent surge for the third quarter, that would be more than double the 1.7 per cent pace in the second quarter.
“This offsets the sour taste from the prior months, but in many ways we’ve seen this coming,” said Doug Porter, chief economist with the Bank of Montreal.
“The best way to look at this is to average out the two months, so when you look through all the noise (of temporary factors), we’re still dealing with an economy that is growing at about 1.5 per cent to two per cent annualized.”
Jimmy Jean of Desjardins Capital Markets concurred, saying the Bank of Canada is unlikely to alter course as a result of the GDP figure.
“We continue to believe that the first hike (in interest rates) will occur no earlier than the spring of 2015,” he predicted.
The Canadian dollar gained moderately by 0.14 cents to 97.20 cents US on the news.
The bigger picture for the Canadian economy going forward, say analysts, is the difficulties brewing in the United States, where the country faces two self-imposed deadlines over a looming government shutdown and the extension of debt limit authority to continue paying its creditors.
Porter said the shutdown and debt issue will have “real consequences” on the U.S. economy, which in turn could sideswipe Canada this fall.
The report Monday was generally strong across the board. Goods production rose 1.2 per cent in July, as construction, manufacturing and mining and oil and gas extraction all increased.
Utilities and the agriculture and forestry sector declined.
Service industries grew by 0.3 per cent in July, with most major industrial groupings expanding.
Notable gains were recorded in wholesale and retail trade, the finance and insurance sector and the arts and entertainment sector.
The public sector (education, health and public administration combined) was unchanged.