Economy

Step Back for Economy in August

Canada's economy unexpectedly contracted in August, according to the report by Statistics Canada, adding to signs of a faster-than-expected cooling following a torrid pace of growth in the first half of this year.

Producer price data were also weaker than expected and the Canadian dollar quickly dropped to $1.2914 to the USA dollar, or 77.44 US cents, from $1.2849, or 77.83 USA cents before the release. Governor Stephen Poloz indicated last week he's in no rush to cool the economy with further with hikes.

The currency has lost about 7% since the Bank of Canada hiked rates at its September meeting.

The central bank suggested future rate hikes were still likely, but noted it will be cautious and pay close attention to the impact of higher interest rates on indebted households, the evolution of the economy's capacity, wage growth and inflation.

"The wonderful run of incredible Canadian economic data is officially over, with growth coming back to reality in hurry", Bank of Montreal chief economist Doug Porter wrote in a note to clients.

The Canadian economy shrank in August, the first monthly decline since October of a year ago, on a slump in manufacturing and lower energy production.

Separately, Statscan said producer prices fell 0.3 per cent in September from August as a stronger Canadian dollar cut the cost of motorized and recreational vehicles.

Statistics Canada said that declines in manufacturing and mining, quarrying and oil and gas extraction "more than offset" the increases in other sectors, as goods-producing industries shrank by 0.7%, while services-producing sectors ticked up by 0.1%.

Analysts in a Reuters poll had forecast prices would increase by 0.4 per cent from August.



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