Canada’s Economy Expands on Oil Extraction

Canada’s economy grew for a seventh consecutive month in August, led by crude oil and financial services, keeping the momentum going for higher interest rates.

Gross domestic product climbed 0.1 percent on the month, Statistics Canada said Wednesday from Ottawa. That beat the median estimate in a Bloomberg survey for an unchanged reading.

Alberta’s oil production rose to a record and higher stock and bond trading boosted the contribution of financial services companies by the most since May 2017. Utilities and the public sector also added to the growth.

The economy is at or near full capacity, according to the Bank of Canada, which this month raised interest rates for a fifth time since July 2017 and signaled more hikes are needed to bring monetary policy to neutral. Other major indicators back up the idea the economy no longer needs stimulus, with inflation around 2 percent and unemployment close to record lows.

The gain keeps the economy on track for annualized growth of around 2 percent, meaning the central bank could raise interest rates again in January, said Brian DePratto, senior economist at Toronto-Dominion Bank. “Combine a healthy economic outlook with the tilt towards hawkishness that accompanied last week’s rate hike, and you have the recipe for further monetary tightening,” he wrote in a research note.

While the August GDP gain was a surprise, it lacked the breadth seen in some past reports, with 12 of 20 major industries posting declines. The Canadian dollar initially erased declines on the report before falling back. It was 0.2 percent weaker at C$1.3135 against the U.S. dollar at 9:54 a.m. in Toronto.

Report Highlights

• Non-conventional crude oil extraction was a major driver of growth in August, rising 3.2%. The other major gain was 1% in financial services
• Statistics Canada revised the June GDP figure to a 0.1% increase from a prior flat reading, which turned what was two straight months of expansion into seven. There was a similar run of growth last year when Canada led the G-7
• The output of utilities companies rose 0.8%, reflecting a second month of hot summer weather in Canada. The other growth driver in August was the public sector’s 0.2% rise
• The 2018 real estate slowdown continued with a 0.4% fall in construction. Residential projects declined 1.6% and the decline over the past three months is the largest since the start of 2009, Statistics Canada said
• Manufacturing was the biggest drag with a 0.6% fall, led by shutdowns at auto assembly plants. Retail and wholesale sales also weakened in August and production from copper and nickel mines fell to the lowest since 2010

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