OTTAWA - Canada's economy was far sturdier than expected over the summer months ahead of fall's stormy weather that had some preparing for a second recession.
Statistics Canada reported Monday the country's gross domestic product reading rose a robust 0.3 per cent in August from the previous month, and July was upgraded a tick to an even stronger 0.4 per cent.
Analysts said the performance puts to bed any speculation Canada could have fallen into a two-quarter recession following the unexpected 0.4 per cent annualized dip during the spring.
And it likely points to a slightly better than expected end of year.
In fact, the third quarter now looks far stronger than the Bank of Canada's call of two per cent only last week. Analysts said barring a total collapse in September — and there's no data pointing in that direction — the three-month period will likely post growth of between 2.7 and 3.0 per cent.
Bank of Montreal's Douglas Porter said he will be revising expectations for the year up two ticks to 2.3 per cent.
"Not a typical recession at all," said Porter.
Analysts cautioned that August's gain was almost exclusively based on activity around Canada's energy sector, which was coming off temporary disruptions.
"But much as the numbers overstates the economy's strength now, it means the weakness before was overstated too," Porter noted. Putting the two quarters together lends a more accurate picture, he said — an economy at below output speed, but still expanding.
The July-August gains put Canada in a better position to absorb the downturn many are expecting following the market turmoil of recent months, and subsequent loss of confidence by businesses and consumers.
In separate releases Monday, the International Monetary Fund and the Organization for Economic Co-operation and Development both stressed that the global outlook, particularly in advanced economies like Canada, has become bleaker and more risk-filled than a few months ago.
The IMF said Canada will still outperform its G7 partners, but only because the others are doing so badly, particularly recessionary Europe.
Both reports, however, were assembled before the surprise GDP readings from Statistics Canada, which is causing domestic analysts to revise their views.
CIBC chief economist Avery Shenfeld said the Bank of Canada was likely too pessimistic with its projection of the economy braking to 0.8 per cent speed in the current fourth quarter.
"We still see growth slipping back below two per cent in Q4, but odds are increasing that the second half should end up well above the Bank of Canada’s recent projection," he said.
Analysts admit that while the near future still looks troubled, it is becoming more difficult to quantify the weakness because the jury is still out on Europe's plan to rescue Greece and its exposed banking sector.
The markets have been fickle since the announcement Thursday — loving the deal last week, but selling off on doubts Monday, pulling Toronto's main index down over 267 points.
In an interview, Export Development Canada chief economist Peter Hall said he has yet to detect any impact on the real economy from the pessimism of markets and confidence surveys.
"Since January there's an enormous wedge between consumer confidence and consumer spending. Same is true between factory orders and business sentiment, which is gloomy as well," he said.
That has led EDC to conclude that Canadian exports won't suffer as much as expected from the global uncertainty. Hall has booked an 11 per cent gain this year, followed by another seven per cent pickup next year.
Also significant is that the U.S. economy has held up well during the third quarter, rising 2.5 per cent and possibly stronger — many economists expect an upward revision in subsequent reports.
Still, some analysts remain firmly in the bear camp. They point to falling production surveys — usually reliable indicators of future activity — and the fact indebted households will need to rebuild savings at some point, in part by cutting back on spending.
August's GDP expansion was primarily due to the energy boost. Statistics Canada noted the country's gross domestic product would have remained unchanged but for the 2.8 per cent jump in the energy sector.
Overall, industries tied to Canada's domestic economy did well, while those related to exports did not.
The financial sector, as well as real estate and insurance, retail and construction, all posted gains.
On the flipside, manufacturing fell 0.4 per cent, wholesale trade 1.4 per cent, and transport and warehousing was also down slightly on weak foreign demand and a strong dollar.
The public sector (public administration, education and health care) overall was unchanged, as was mining.
Economists were uniform in saying the results are unlikely to materially alter the Bank of Canada's position on interest rates. They said the central bank will likely keep its target overnight rate at one per cent until at least the middle of next year, and some say until well into 2013.