Canada’s gross domestic product is on track to grow by 0.4 per cent in the third quarter, Statistics Canada said on Friday, positioning the Canadian economy to avoid a

technical recession. GDP contracted by 0.3 per cent in August, driven by a 0.6 per-cent drop in the goods-producing sector and a 0.1 per-cent decline in services, the first such decline in six months. August’s figures offset most of the growth delivered in July.

Transportation and warehousing posted the biggest monthly sectoral decline, led by the

Air Canada flight attendants strike, in which 10,000 workers walked off the job, resulting in flight cancellations.

Statistics Canada’s flash estimate for September has the Canadian economy growing by 0.1 per cent, but this figure is preliminary, and will be updated at the end of November.

GDP had contracted by 1.6 per cent in the second quarter. Two consecutive quarters of declining GDP are considered a technical recession.

Charles St-Arnaud, chief economist at Alberta Central, said while the economy no longer looks like it’s deteriorating, economic activity remains “anemic” which could pose more problems for Canada’s labour market and the Bank of Canada.

“The longer economic activity remains weak, the more likely we are to see important job losses,” he said, in a note.

The Bank of Canada cut its policy rate for the second straight time on Wednesday, bringing the overnight rate down to 2.25 per cent. Bank of Canada governor Tiff Macklem said the central bank made this decision based on a weak growth outlook for the Canadian economy and contained inflationary pressures.

In its first forecast since before the trade war with the United States erupted, the central bank forecasted 0.5 per cent growth in the third quarter and expects the Canadian economy to avoid a recession this year, although Macklem said the weak growth will “not feel good.”

The governor said the weakness in the Canadian economy is not just cyclical, but structural in nature, and has put Canada on a permanent path of lower growth. Macklem also signalled the bank may be finished with its easing cycle, if the economy operates in line with its forecast.

Desjardins Group economic analyst LJ Valencia said the economy’s outlook remains precarious, given the uncertainty around the

Canada-United-States-Mexico Agreement (CUSMA) next year. Still, Valancia doesn’t see anything in Wednesday’s data that would prompt a change in the central bank’s intentions.

“There are limits to what rate cuts can accomplish in the face of a structural economic shock,” said Valencia, in a note. “Today’s GDP data is broadly in line with the bank’s latest forecast, and therefore, does not move the monetary policy needle.”

In addition to transportation and warehousing, the wholesale trade sector declined by 1.2 per cent in August, after posting three consecutive monthly increases. The motor vehicle and parts subsector led the declines, contracting by 8.3 per cent during the month.

Mining, quarrying, and oil and gas extraction contracted by 0.7 per cent in August, driven by a decline in rigging and drilling activity. Metal ore mining and coal mining activity also declined during the month.

The manufacturing sector was down by 0.5 per cent, although primary metal manufacturing increased by 3.7 per cent during the month, as alumina and aluminum production and processing increased.

Retail trade was up by 0.9 per cent in August, with motor vehicle and parts dealers leading the growth.

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