Canada economy grows through September, but way forward 'clouded'

OTTAWA (Reuters) - The Canadian economy grew in both August and September, with the August gain slightly above expectations, but a rise in COVID-19 infections, along with targeted restrictions to curb the virus, are expected put a lid on economic activity into the fall.

FILE PHOTO: The ship Anna Maersk is docked at Roberts Bank port in Vancouver, British Columbia, Canada June 29, 2019. REUTERS/Jason Redmond/File Photo

Canada’s real GDP rose 1.2% in August, ahead of analyst estimates of a 0.9% gain. Statscan said it’s preliminary estimate for September was a gain of 0.7% and a real GDP gain of 10% in Q3. That would translate to a 46% annualized gain for the quarter, analysts said.

“The good news is that Canada’s economy continued to heal in both August and September,” said Royce Mendes, senior economist at CIBC Capital Markets, in a note, although he added that the preliminary estimate for September was underwhelming.

“It appears that the economy was slowing more than expected heading into the fourth quarter,” Mendes said.

Even with the gain in August, economic activity remains about 5% below its pre-pandemic level, Statscan said.

Clawing the rest of the way back will prove difficult, with Canada now averaging 2,747 new COVID-19 cases per day, prompting renewed restrictions in hard-hit regions. Targeted closure began in late September.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in Q4,” said Doug Porter, chief economist at BMO Capital Markets.

Still, Porter said fiscal supports and the more targeted approach this time around would likely mean the late-year setback would be “relatively mild.”

The August GDP gains were driven by the public sector, which grew 1.9%. The manufacturing sector was up 1.2%, though the pace of growth was far slower than in the previous three months.

The Canadian dollar CAD= was trading 0.2% higher at 1.33 to the greenback, or 75.19 U.S. cents, clawing back some of its weekly decline.

Reporting by Julie Gordon and Dale Smith; editing by Jonathan Oatis, Kirsten Donovan