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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