Canada growth slows to 1% in Q2; GDP shrank in June
CANADIAN economic momentum decelerated in the second quarter after an unexpectedly strong start to the year.
Preliminary data suggest gross domestic product decreased 0.2 per cent in June, the first contraction this year, led lower by the wholesale and manufacturing sectors, Statistics Canada reported on Friday (Jul 28) in Ottawa.
That followed a 0.3 per cent expansion in May, matching the median estimate in a Bloomberg survey of economists.
Overall, the monthly gains – including April’s 0.1 per cent boost – point to annualised growth of 1 per cent in the second quarter. Although it will likely be revised, that’s slower than the 1.5 per cent pace projected by the Bank of Canada earlier this month, and much weaker than the 3.1 per cent growth in the first three months of 2023.
Governor of the Bank of Canada Tiff Macklem and his officials forecast economic growth to moderate to an average of about 1 per cent through the second half of this year and the first half of 2024. They expect higher interest rates to weigh on household spending and business investment, and weak foreign demand amid a broader global slowdown to restrain export growth.
Friday’s report supports that projection and suggests Canada’s economy is entering a softer patch, after shrugging off the previous interest-rate hikes by the central bank. Growth in consumption spending is expected to slow over the second half of this year, as demand for rate-sensitive goods and services weakens and more households renew their mortgages at higher rates.
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In the US, GDP expanded at a 2.4 per cent annualised pace in the second quarter, up from a 2 per cent pace in the first, with much of the growth driven by consumer spending and non-residential investment.
The unexpected strength of Canadian household spending and increase in exports, which lifted economic activity and the labour market, spurred the Bank of Canada to abandon a pause to its tightening cycle in June. Policymakers said monetary policy was insufficiently restrictive and excess demand was sustaining underlying price pressures, prompting them to raise borrowing costs for two straight meetings to 5 per cent.
In May, service-producing industries were up 0.5 per cent, while goods-producing industries partially offset that gain with a 0.3 per cent decline.
Manufacturing, wholesale and public administration drove the increase that month, with the latter rising 1.4 per cent, bouncing back after most federal government workers who were on strike returned to work by the end of April.
One other bright spot in the economy is the real estate sector. Demand for real estate remained strong, and activities related to real estate advanced for a fourth consecutive month. The 7.6 per cent increase in May was led by higher home reselling activity in the majority of Canada’s largest markets, including Toronto, Vancouver, Calgary, Edmonton and Ottawa.
Manufacturing advanced 1.6 per cent in May, the largest increase since October 2021, and wholesale trade jumped 2.9 per cent.
But the advance estimate suggests that downward movements for the wholesale trade and manufacturing sectors in June more than offset the increases recorded in May.
Canada’s ongoing forest fires have already hampered growth in some energy-related industries. Following four months of growth, the oil and gas extraction subsector fell 3.6 per cent in May. Oil and gas extraction, excluding the oil sands, dropped 6.6 per cent. That’s the industry’s largest monthly contraction since April 2020, with a steep drop in both natural gas extraction and crude oil. BLOOMBERG
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