By Ismail Shakil
OTTAWA (Reuters) -Canada’s gross domestic product expanded at a faster-than-expected 0.2% rate in July, driven by growth in the retail trade and public sectors, but the economy likely stalled in August, data showed on Friday.
Analysts polled by Reuters had forecast GDP to rise 0.1% in the month, after zero growth in June. The growth in July was despite the negative impact of wildfires on several industries, Statistics Canada said.
Preliminary data for August, however, showed GDP was essentially unchanged as growth in oil and gas extraction and the public sector were offset by contraction in manufacturing, as well as transportation and warehousing.
That forecast keeps alive concerns about a weakening economy and puts the economy on track for 1% annualized growth in the third quarter if GDP remains unchanged in September.
The Bank of Canada (BoC) had predicted a 2.8% growth rate for the third quarter in July, but data released since then have led economists to doubt that projected trajectory and raised bets for a larger-than-usual rate cut in October.
The central bank has cut interest rates three times since June, moving in quarter-percentage-point steps, but has said it could shift to larger cuts if the economy needs a boost.
Money markets see a roughly 50% chance of a 50 basis-point cut at the bank’s next announcement on Oct. 23 and are fully pricing in another 25 basis point cut in December.
The Canadian dollar was trading down 0.08% to 1.3475 to the U.S. dollar, or 74.21 U.S. cents after the data. Bonds yields on the two-year government bonds were down 3.4 basis points to 3.07%.
On Tuesday, BoC Governor Tiff Macklem said that it was reasonable to expect more rate cuts given the progress made in cooling inflation and reiterated the bank wanted to see growth pick up to absorb economic slack.
Economic growth in July was driven by increases in both services and goods industries, Statscan said.
The services-producing industries rose 0.2%, led by growth in retail trade, and the public, and financial and insurance sectors that helped to offset the wildfires’ impact on transportation and warehousing, as well as accommodation services.
The goods-producing industries grew 0.1%, driven by the utilities and manufacturing sectors.
(Reporting by Ismail Shakil and Dale Smith; Additional reporting by Promit Mukherjee; Editing by Alex Richardson)
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