The Canadian economy contracted 0.1 per cent in August, following 0.2 per cent growth in July. Declining industry output was registered mainly in the goods production sector due to weakness in mining and oil and gas extraction and manufacturing. Declines were also registered in utilities and construction. Output in the services sector was unchanged as increases in wholesale trade, transportation and the public sector were offset by declines in real estate activity, retail trade and finance and insurance.
Our updated third quarter GDP tracking estimate is currently reading just 1 per cent growth, in-line with the Bank of Canada's most recent forecast. Therefore, while the economy underperformed in the third quarter, that weakness was expected and so will not move the Bank off of its rate tightening bias. We are forecasting that the Canadian economy will grow at a modest pace of about 2.0 per cent this year followed by 2.1 per cent growth in 2013. This moderate growth and low inflation combined with lingering global economic uncertainty will continue to keep the Bank of Canada on hold until mid-to-late 2013.