Canada’s gross domestic product was flat for July, matching Statistics Canada’s early estimate but falling short of analysts’ expectations of 0.1 per cent growth.

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'Struggling to grow': What economists are saying about Canada's GDP Back to video

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In its flash estimate for August, the agency expects GDP to rise 0.1 per cent.

The Bank of Canada is forecasting growth of 1.5 per cent in the third quarter, but some economists think this is too optimistic.

“All told, assuming growth remains modest in September as the impact of high interest rates continues to bite, that leaves the Canadian economy on track for a flat-to-very low positive print for all of Q3,” said Robert Kavcic, an economist with Bank of Montreal, after the data came out on Sept. 29.

Here is what economists are saying about the latest data.

Claire Fan, RBC Economics

“The GDP growth backdrop in Canada continues to soften, in contrast to sticky inflation prints that are still running above the Bank of Canada’s 2 per cent target. With interest rates already at very restrictive levels, further increases from the BoC and other central banks will remain very data dependent. Firmer-than-expected inflation readings in Canada have increased the odds of another BoC interest rate hike this year. But inflation lags the economic cycle and there are growing signs that the impact of earlier interest rate increases are working to cool the economy. There is another CPI and labour market report before the next BoC decision on October 25th. Our own base-case forecast does not assume additional BoC interest rate hikes.”

Marc Ercolao, TD Bank

“With today’s print and August’s flash guidance, there is downside risk to our modest expectation for one per cent growth in the third quarter. It is also considerably lower than the Bank of Canada’s 1.5 per cent estimate. Not surprisingly, today’s print ultimately tamped down the expectations for another rate hike in the coming month, with markets having lowered their probability of a hike at next meeting to 35 per cent. The BoC must balance a slowing growth backdrop against renewed inflation pressures in August, especially across the BoC’s core measures. The BoC will need to remain vigilant and see more evidence of a cooling economy before they can get comfortable on the sidelines. Next week’s update to employment and wages combined with updates to September’s inflation figures next month will be the two key metrics on watch that will inform the BoC’s next policy decision on Oct. 25.”

Jay Zhao-Murray, currency analyst, Monex Canada

“Overall, today’s report suggests that, following a stagnant Q2, Canada’s economy continued to tread water in the third quarter, especially considering the CFIB’s Business Barometer fell to its weakest level since the pandemic in September. However, the composition of growth is important here, as both the July data and advanced August readings suggest that headline GDP data is being mechanically weighed down by inventories and external conditions, thus under-reporting domestic growth conditions which are important determinants for core inflation. Therefore, on the surface, the latest data poses a bit of a conundrum for the Bank of Canada. Without confirmation that the latest uptick in core inflation stems from more resilient domestic growth conditions, we think it remains questionable whether the BoC hikes again.”

Robert Kavcic, Bank of Montreal

“While some disruptions have compromised the ‘cleanliness’ of recent GDP data, the bigger picture is that Canada is really struggling to grow right now. Real GDP is little changed over the past six months, which looks even weaker when considering that the population is exploding at a three per-year run rate. The Bank of Canada still has their eyes on stubborn core inflation and firm wage growth, but struggling growth argues for them to remain on hold and lean on the tightening that has already been put in place.”

Matthieu Arseneau and Alexandra Ducharme, National Bank

“The economy is on track to remain essentially flat in the third quarter, well below the Bank of Canada’s expectations of 1.5 per cent growth. This miss would effectively be a carbon copy of the second quarter, when the BoC’s estimate of 1.5 per cent growth was also compared to essentially flat realized growth. And we don’t think this lack of momentum is going to be reversed anytime soon. As we showed in a note published yesterday, consumer and SME (small- and medium-sized enterprise) confidence are at recessionary levels, reinforcing our view that a contraction in activity is in the cards for the fourth quarter. Nevertheless, the BoC may be tempted to raise rates again as inflation has surprised on the upside. In the minutes of the September decision, members agreed that they needed confirmation that the slowdown in demand was easing inflationary pressures before lowering their guard. Since inflation is a lagging indicator and interest rates have a delayed effect on the economy, this approach carries a high risk of overkill.”

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