By Ismail Shakil and Steve Scherer
OTTAWA (Reuters) - The Canadian economy flatlined in August and likely slipped into a shallow recession in the third quarter, data showed on Tuesday, a week after the central bank left interest rates unchanged, citing slowing economic growth.
The August result was slightly lower than 0.1% month-over-month rise forecast by analysts polled by Reuters. July GDP was revised to being marginally negative from an initial report of zero growth.
In a flash estimate, the economy was also unchanged in September, and Statscan officials said that translated into an annualized 0.1% decline in the third quarter, marking a second consecutive quarter of negative growth.
"The Canadian economy is already skirting a recession, with preliminary industry data for Q3 suggesting the possibility of a further slight contraction in activity to follow Q2's surprise decline," said Andrew Grantham, senior economist at CIBC (TSX:CM) Capital Markets.
The statistics agency said high interest rates, inflation, forest fires and drought conditions weighed on the economy in August. The central bank says its rate hikes to a 22-year high of 5.0% are slowing the economy.
The projected contraction in third-quarter annualized growth is far lower than the Bank of Canada (BoC) forecast last week. The BoC forecast GDP growth would expand 0.8% in the third quarter, down from 1.5% projected in July.
"Whether or not the economy is already in recession is less important than the fact that the lagged impacts of monetary policy are likely to materially depress economic activity moving forward," said Tiago Figueiredo, an economist at Desjardins.
"As a result, we expect the economy to more clearly enter a recession in 2024. This data reaffirms our view that the Bank of Canada is done raising rates for this cycle," Figueiredo said.
Money markets see an 11% chance for an interest rate increase at the central bank's next policy announcement in December.
The Canadian dollar was trading 0.2% lower at 1.3848 to the greenback, or 72.21 U.S. cents.
Canada's goods-producing sector contracted 0.2%, dragged down by the third consecutive month of declines in the manufacturing sector.
The service-producing sector posted a 0.1% rise, in part helped by the wholesale trade and the transportation and warehousing subsectors.