Canada’s Q2 GDP growth lags expectations; contraction seen in July

An individual outlets on the North Mart grocery retailer in Iqaluit, Nunavut, Canada July 28, 2022. REUTERS/Carlos Osorio/File Photograph

OTTAWA, Aug 31 (Reuters) – Canadian financial development lagged within the second quarter and most probably dipped into unfavourable territory in July, knowledge confirmed on Wednesday, signaling the economic system could also be cooling extra rapidly than anticipated forward of a fee choice subsequent week.

Canada’s economic system grew at an annualized fee of three.3% within the second quarter, Statistics Canada mentioned, in need of the Financial institution of Canada’s forecast for 4.0% and properly beneath analyst forecasts of 4.4%.

Actual GDP edged down 0.1% in July, Statscan mentioned in an advance estimate, reversing June’s acquire of 0.1%. Declines in July have been pushed by decrease output in manufacturing, wholesale, retail commerce and utilities.

“I feel all of it indicators that the economic system is weakening, maybe quicker than even we anticipated,” mentioned Jimmy Jean, chief economist at Desjardins Group.

The unfavourable print for July suggests third-quarter development will are available in in need of the Financial institution of Canada’s forecast of two.0%, mentioned economists. Nonetheless it was unlikely to sway the central financial institution from its present tightening path.

“For the Financial institution of Canada I do not suppose this actually adjustments a lot. Their goal, their main focus is inflation above all, so though development is a bit bit shy of expectations, there’s actually no reduction right here,” mentioned Doug Porter, chief economist at BMO Capital Markets.

Canadian inflation eased to 7.6% in July from a close to four-decade excessive of 8.1% in June, however stays far above the central financial institution’s 2% goal. learn extra

Cash markets see a roughly 75% probability the Financial institution of Canada will improve charges by 75 foundation factors at its choice subsequent week, following a shock 100-bp hike to 2.5% in July.

After that call, Governor Tiff Macklem mentioned the economic system would doubtless have a “smooth touchdown,” although the trail to avoiding a recession was narrowing. learn extra

Second-quarter development was pushed by enterprise funding in inventories and family consumption, with Statscan noting that Canadians spent extra on clothes and footwear amid a return to the workplace and an uptick in journey as COVID-19 pandemic restrictions light.

However imports grew greater than exports within the quarter, moderating beneficial properties, with funding in housing additionally dropping sharply. Canada’s actual property market, which had been crimson scorching, has turned chilly amid increased rates of interest.

The Canadian greenback was buying and selling down 0.1% at 1.31 to the buck, or 76.28 U.S. cents, after the info.

Reporting by Julie Gordon in Ottawa; Extra reporting by Dale Smith, Ismail Shakil and Steve Scherer in Ottawa; Modifying by Paul Simao and Andrea Ricci

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