Canadian economic growth fell short of expectations in July as a higher dollar kept visitors away and rising crude prices did little to stimulate activity in the country's oil patch, Statistics Canada said Thursday.
Overall, gross domestic product — the broadest measure of economic activity — edged ahead by 0.1 per cent in the first month of the third quarter.
Most economists had expected an increase closer to 0.3 per cent.
Although Thursday's headline number offered a somewhat disappointing reading on overall growth, Statscan also noted that June's advance was slightly stronger than first thought. During that month, the economy grew by 0.4 per cent, up from initial estimates of 0.3-per-cent growth in the final month of the second quarter.
Despite the weaker-than-expected report, the Canadian dollar managed to edge past the 79-cent (U.S.) mark Thursday. The loonie closed at 79.26 cents, up 0.51 of a cent from Wednesday's 11-year high of 78.75 cents.
The July report comes less than a month after the Bank of Canada raised interest rates for the first time in 17 months on Sept. 8, saying "monetary stimulus needs to be reduced" in order to contain inflation as economy operates near capacity.
The bank's next decision is due Oct. 19 and most economists expect to see another interest rate increase, although BMO Nesbitt Burns chief economist Sherry Cooper also noted that a December move now remains "an open question."
"While this [Thursday's report] is a clearly disappointing result, the weakness is heavily concentrated in the tourism sector, and doesn't look to be the start of a trend," she said in a note to clients.
"This report will dull some of the most optimistic calls for third-quarter growth — which now looks closer to 3 per cent — but is unlikely to keep the bank from hiking rates again in October."
On Wednesday, the International Monetary Fund raised its outlook for the Canadian economy, saying it now expects annual growth this year of 2.9 per cent, up from April's forecast of 2.6-per-cent growth. The IMF also predicted Canada's economy will expand 3.1 per cent next year.
``Personal consumption is being driven by surging employment, rising disposable income, and a buoyant housing market; business investment by robust profitability; and exports by global demand, especially from the United States, despite the appreciation of the Canadian dollar," the report said.
``With the acceleration in growth helping to close the output gap and gradually push core inflation nearer to the midpoint of the Bank of Canada's one to three per cent target range, the increase in interest rates in September was appropriate."
According to Thursday's Statscan report, the economy got a boost in July from gains in the manufacturing, wholesale and retail sectors.
Industrial production — the output of Canada's factories, mines and utilities — was up 0.3 per cent in July, with all components showing gains.
Wholesaling activity, meanwhile, advanced by 0.6 per cent, following a 1.4-per-cent increase in June. Retail activity advanced 0.5-per-cent for the month, helped by strong consumer demand for big-ticket items.
On the downside, however, the construction industry recorded its fourth decline in as many months.
"Activity in both residential and non-residential building receded in July for a fourth consecutive month," Statscan said.
"Residential construction was down 0.2 per cent in July, largely as a result of a3.5-per-cent decline in apartments."
Housing starts, the agency said, were down in every region except Quebec and New Brunswick in July, while the sale of existing homes was also lower.
Non-residential building activity fell by 1.6 per cent, Statscan said.
In the mining, oil and gas sector activity was mixed. The sector as a whole advanced by 0.2 per cent following a decline of 0.8 per cent in June, although higher oil prices failed to stimulate activity, Statscan said.
"High crude oil prices did little to stimulate activity as both oil and gas extraction and drilling activities were lower in July," Statscan said.
Metal ore mining fell as extraction of iron ore plummeted 24 per cent as a result of labour disruptions. The mining of copper, lead, zinc and nickel was up 5.5 per cent as demand from China surged.
Elsewhere, Statscan said, the combination of a higher dollar, slowdowns at the U.S. border and cooler summer temperatures led to declines in accommodation services and air transportation.
"Many other travel and tourism related industries were also adversely impacted including travel agents, inter-city bus, recreation, entertainment, arts, sports and gambling activities," Statscan said.
© The Globe and Mail
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