The Canadian Statistics Agency said on Thursday that the Canadian economy registered steady growth in August, but there were signs of a recovery in September.
 

Economists who responded to this news said that the "soft" reading of real GDP supports calls for another significant rate cut from the Bank of Canada, but they warned that there is much data to come before the central bank's next decision in December.

The goods-producing industries experienced their largest decline since December 2021, with the manufacturing and utilities sectors contracting during the month.

StatCan noted that some growth in services, particularly in the finance and insurance and public administration sectors, offset this decline.

Additionally, closures in August of CN Rail and Canadian Pacific Kansas City led to a decline in the transportation and warehousing industry.

This came after another sharp decline in July, as wildfires in Jasper disrupted national transportation networks.

Meanwhile, the agency's early outlook for September anticipates a 0.3 percent rebound in monthly real GDP growth.

These preliminary estimates will be revised when final numbers for the month and the third quarter are published at the end of November.

The Bank of Canada, which last week implemented a significant 50 basis point cut to the benchmark interest rate, is increasingly focusing on the health of the economy while shaping monetary policy, now that inflation has eased to its 2 percent target.

Based on early readings for September, the third quarter is tracking an annual real GDP growth of 1.0 percent.

This is below the Bank of Canada's call for growth of 1.5 percent in this quarter, which has already been revised down from July's 2.8 percent forecast.

August's "soft" GDP aligns with sharp interest rate cuts: economists expect the central bank to announce its final decision on the interest rate for this year on December 11, and monetary policymakers will take a more comprehensive look at real GDP growth in the third quarter ahead of that meeting.

While it is widely expected that interest rates will be cut for the fifth consecutive time, it remains to be seen whether the bank will make another significant move or return to the usual 25 basis point cuts.

Andrew Grantham, chief economist at CIBC, noted in a client memo Thursday morning that the August figures support his call for a second half-point cut in December in an effort to stimulate the economy.

He said, "With growth re-emerging lower than their already downgraded expectations, we continue to predict that policymakers will deliver another 50 basis point cut at the December meeting."

Doug Porter, chief economist at BMO, acknowledged that the August GDP reading leans toward sharp interest rate cuts, but he said it is far from settled with the standout results of the third quarter, and additional inflation and jobs data are still due before the central bank has to make a decision.