September 5, 2023

Weekly EconMinute—Canada’s quarterly GDP update

In this week’s EconMinute, we’re talking about Canada’s quarterly GDP update.

As economists look for potential signs of the Canadian economy slowing, Statistics Canada’s release of quarter two GDP was a big one to watch. 

The first quarter of the year was unexpectedly strong for the Canadian economy—which delivered 2.6% growth, well above the Bank of Canada’s initial 0.5% forecast. So all eyes were on Friday’s release for the second quarter of data to see: did the economy slow as anticipated, or continue to buck forecasts? And slow it did, even more than most thought.  

So what did the latest update reveal?  

  • Economic growth was essentially flat in the second quarter of the year, down 0.02% (measured in annual terms).  
  • This is weaker than the 1% growth the Bank of Canada expected as of April’s Monetary Policy Report and is an even bigger departure from the more optimistic 1.5% growth the Bank expected as of July.   
  • The weakness was broad-based, driven by a slowdown in consumer spending and exports to other countries, and, perhaps unsurprisingly, a continued decline in housing investment.  
  • However, one surprising standout was businesses investment (non-residential) which continued to grow (+2.4% in the second quarter) in spite of higher borrowing costs.  

Though continued business investment is encouraging, this release, along with recent weakness in the labour market, point to a slowing Canadian economy. Mounting evidence of a slowdown is likely to raise the bar on how much inflation the Bank of Canada will tolerate before it decides to raise interest rates again.  

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