The Canadian economy accelerated in the second quarter as the nation benefited from surging commodity prices and got a boost from the lifting of COVID-related lockdowns, though signs are emerging momentum is waning.
Gross domestic product rose at a 3.3 per cent annualized rate after a revised 3.1 per cent increase in the first three months of the year, Statistics Canada reported Wednesday. Growth was led by stronger household consumption and business spending on inventories.
The numbers paint a picture of an economy running hot for much of the first half of 2022, even as the U.S. and other countries stumbled, but is now entering a period of much slower growth in the face of decades-high inflation and rising interest rates.
The latest monthly readings show the economy contracted by 0.1 per cent in July, after a weak 0.1 per cent gain in June and flat growth in May, adding to evidence of slowing economic momentum.
Economists anticipate Canada’s growth rate will fall to below 1.5 per cent annualized in the second half of this year and into 2023, with some even predicting a recession possible amid one of the most aggressive hiking cycles ever by the Bank of Canada.
A median estimate in a Bloomberg survey of economists expected a 4.4 per cent annualized growth rate in the second quarter. The Bank of Canada forecast 4.0 per cent in their July Monetary Policy Report.
The weaker-than-expected reading reflects strong growth in imports. The part of household and business spending that is used to buy goods and services from other countries is not counted as domestic output.
RATE HIKES
The nation’s central bank has already increased its overnight policy rate by 2.25 percentage points since March, and is expected to continue hiking through the rest of the year. Investors are almost fully pricing in another 75 basis point increase at the Bank of Canada’s next policy decision on Sept. 7.
Canadians are also facing higher prices for virtually everything, with wage gains not keep up with the pace of inflation, which has hovered around 8 per cent in recent months.
To be sure, higher prices didn’t stop households from accelerating their spending in the first half. Household consumption jumped by an annualized 9.7 per cent in the second quarter.
Canada’s resource-rich economy in the first half also benefited from surging commodity prices, driving incomes higher and stoking demand.
Growth in nominal output rose 4.2 per cent on a non-annualized basis due to rising prices for national produced goods and services — the strongest increase outside of the pandemic recovery since 1981. Worker compensation was up a robust 2.0 per cent.
Businesses took advantage of the buoyant demand and strong commodity prices to accumulate inventories, totaling $47 billion. Inventory buildup was the biggest contributor to growth in the second quarter.
Business investment in structures and machinery and equipment also came in at a very strong 14 per cent annualized pace.
U.S. DECOUPLING
The strong demand helped Canada experience a rare economic decoupling from the U.S. Over the past six months, the U.S. expansion went into reverse with back-to-back quarterly contractions, even as Canada record one of the strongest six-month periods of growth in recent decades.
But that outperformance, at least compared to the U.S., represents in part a catching-up. Canada suffered through more strict lockdowns than the U.S., where the full recovery in GDP was faster.
Economists anticipate the Canadian and U.S. economies will converge in the second half of this year, and grow by about the same pace over the next couple of years.
In Canada, the impact of higher interest rates is already being felt, the data show. Residential investment fell by an annualized 28 per cent rate in the second quarter, the second-largest drop since the early 1960s. The largest quarterly decline in housing investment was during the depths of the pandemic.
The bulk of the gains in household consumption, meanwhile, were in services and semi-durables. Spending on interest-sensitive durable goods fell.
TRADE DRAG
Strong consumer demand in the first half, meanwhile, isn’t fully translating into more economic activity. Much of the spending is going abroad, with imports shooting up an annualized 31 per cent in the second quarter.
While exports also jumped by an annualized 11 per cent, shipments abroad failed to keep up with the pace of imports. Overall, the trade sector acted as a drag on growth, lowering growth by an annualized 5.2 percentage points.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
