Canadian economy out of recession, but quarter ends on down note

Canada’s economy grew in the third quarter, bringing the country out of a technical recession, but the quarter ended on a down note as GDP fell by 0.5 per cent in September.

After two consecutive quarterly declines, the country’s real gross domestic product grew by 0.6 per cent in the third quarter, said Statistics Canada. The agency said that growth was driven by increased international demand for Canadian goods and services as exports grew 2.3 per cent.

“Expressed at an annualized rate, real GDP expanded 2.3 per cent in the third quarter. By comparison, real GDP in the United States rose 2.1 per cent,” said the federal agency.

Despite the increase, the quarter ended with a decline. Real GDP fell 0.5 per cent in September following three consecutive monthly increases. The September drop was primarily a result of declines in the mining, quarrying, and oil and gas extraction sector, Statistics Canada reported.

The agency said the output of goods-producing industries fell 1.5 per cent — largely due to a 5.1 per cent decline in mining, quarrying, and oil and gas extraction, as well as a smaller (0.6 per cent) drop in manufacturing. Utilities and the agriculture and forestry sector increased, while construction was unchanged.

“Oil and gas extraction fell 5.5 per cent in September, mainly as a result of a large decrease in non-conventional oil extraction,” said the federal agency. “Support activities for mining and oil and gas extraction fell 13 per cent in September, because of a drop in both drilling and rigging services. The output of the support activities for mining and oil and gas extraction industry has decreased for five consecutive quarters, down 49 per cent from September 2014 levels.”

Service-producing industries edged down 0.1 per cent in September.

Doug Porter, chief economist with BMO Capital Markets, said that in September the energy sector alone accounted for 0.4 percentage points of the monthly drop in GDP.

He said the Canadian economy “is still struggling to grow consistently at this stage of the cycle.”

“While tempting to say that the decent Q3 results mean that phoney recession-mania has bitten the dust, it is a tad unsettling that GDP took such a sizeable step back in September. In effect, the quarter came in like a raging lion and left like a feeble lamb,” said Porter.

“Still, the deep September drop was largely due to a one-time hit which should reverse, and we still look for growth of just below two per cent in Q4.”

Brian DePratto, economist with TD Economics, said the Canadian economy was able to snap back to life in the third quarter despite continued weakness in investment in the Canadian economy.

“There is good reason to believe that the relatively strong growth of the third quarter will not be repeated,” he said. “Momentum appears weaker heading into the fourth quarter, even abstracting from the noise in the oil and gas sector, with growth currently tracking close to 0.8 per cent. Looking into 2016 and beyond, we continue to expect moderate growth of around two per cent per year.

“A continued shifting of Canadian growth drivers is anticipated, with exports taking a more leading role as the housing market takes a breather and investment continues to face the dual headwinds of low oil prices and a weak loonie.”