Canada: Recovery in high-contact services underpins Q3 growth – RBC CM

Data released on Friday showed GDP dropped by 0.1% in July, a lower-than-expected contraction, and preliminary data points to a 0.7% expansion in August. Recovery in high-contact services underpins Q3 growth while supply chain disruptions keep a lid on goods production, explained analysts at RBC Capital Markets. 

Key Quotes: 

“The -0.1% GDP reading for July was above the advance estimate for a 0.4% decline albeit still on the soft side given pandemic containment measures  eased significantly in much of the country over the period. Gains in ‘high-contact’ services industries like accommodation and food services (+12.5%) were offset by contractions in manufacturing (-1.1%) and construction (-0.9%) related to ongoing shortages of key capital and labour inputs, and cooling new residential building.”

“The early estimate for August output was decidedly better, up 0.7% from July, supported by a further recovery in accommodation and food services. And there is still room for growth – output from the sector was still 21.3% below pre-pandemic levels in July.”

“The July and August GDP to-date are up an annualized 2.2%, on average, from Q2 - tracking slightly weaker than our call for 4.5% Q3 increase, and the Bank of Canada's July estimate for an 7.3% rise.”