Canada’s economic engine stalled in July as GDP contracted again

The total value of all the goods and services Canada produced shrank for the third time in four months in July, a sign that the COVID-19 pandemic continues to wreak havoc on the country’s economy.

Statistics Canada reported Friday that Canada’s gross domestic product (GDP) shrank by 0.1 per cent in July.

The accommodation and food services sector expanded by 12 per cent as more provinces reopened their economies after the third wave. A similar trend was seen in the hard-hit arts, entertainment and recreation sector, which expanded by eight per cent.

But those sources of strength weren’t enough to offset weakness in other parts of the economy, including agriculture, which shrank by 5.5 per cent due to extreme heat in Western Canada hurting crop yields. 

Wildfires in B.C. made a dent in the forestry and logging industry, which shrank by 3.9 per cent.

The utility sector shrank by 4.9 per cent while manufacturing contracted by 1.1 per cent and construction slumped by 0.9 per cent.

July’s numbers mean Canada’s economy is still two per cent smaller than it was 19 months ago before the pandemic started.

The glum number for July was slightly better than the 0.2 per cent drop that economists were expecting, but the data agency gave an advanced estimate for August that suggests a stronger bounce back was underway. 

It looks like the economy expanded by 0.7 per cent for August, as bounce-backs in some sectors were enough to offset weaknesses in others.

“The increases in the accommodation and food, manufacturing and retail trade sectors were partly offset by lower activity in agriculture, as drought conditions continued to impact crop production,” the data agency said.

That bounce-back is an encouraging sign as the spectre of another COVID winter once again looms over Canada’s economy.

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Economist Royce Mendes with CIBC says as the weather gets colder, it’s going to be critical to see other parts of the economy pick up as businesses that rely on outdoor activities shut down again. 0:40

Sri Thanabalasingam, an economist with TD Bank, described the numbers for July as “lacklustre” but says the stronger than expected number for August is good news considering what we know about what’s happening in the economy now.

“It appears the Canadian economy ended the summer on a high note, but the fall season could lower the octave,” he said. “Cooling weather and the resurgence of the pandemic (already occurring in Alberta and Saskatchewan) could dampen enthusiasm for recreational activities … this could test the resilience of the economy in the months ahead.”

Economist Royce Mendes with CIBC says the data for July illustrates just how long and slow the recovery from COVID-19 will be for the economy, especially in the most hard-hit sectors.

Airline activity jumped by 68 per cent in July, he noted, but despite that jump, the sector is still 80 per cent below where it was before the pandemic.

“That tells you how steep a hill that is still left to climb for certain sectors. Even though weather was warm, COVID cases were low, people were mobile during the summer, there’s still a long way to go to get this economy back to firing on all cylinders,” he said in an interview with CBC News.

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