Canadian Economy Expands at 2.1% Annual Rate in Q2 Despite Decrease in Household Spending
The economy saw growth at an annualized rate of 2.1 percent in the second quarter, surpassing the Bank of Canada’s forecast. However, on a per-person basis, the economy continued to shrink.
According to Statistics Canada’s real gross domestic product report released on Friday, the growth was fueled by increased government spending, business investments in engineering structures, machinery and equipment, and household spending on services.
Conversely, there were declines in exports, residential construction, and household spending on goods.
Economic growth came to a standstill towards the end of the quarter, with the real GDP remaining essentially unchanged in June. A preliminary estimate suggests the economy stayed flat in July as well.
This data precedes the Bank of Canada’s upcoming interest rate decision on Wednesday.
Senior economist Andrew Grantham from CIBC noted, “Growth in the Canadian economy exceeded expectations in Q2, but the weak momentum heading into the third quarter warrants the BoC to continue reducing interest rates.”
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Economists anticipate the central bank to decrease its key policy rate by a quarter of a percentage point, bringing it to 4.25 percent.
Bank of Canada governor Tiff Macklem mentioned in the last interest rate announcement that interest rates are being lowered to aid the economy in its recovery.
Although high interest rates have not led to a recession, the economy still lags behind strong population growth.
On a per person basis, the economy shrank for the fifth consecutive quarter.
The labor market is also displaying signs of economic fragility, with the unemployment rate continuing to rise.
Canada’s unemployment rate stood at 6.4 percent in July, with youth and recent immigrants experiencing disproportional effects from the slowing job market.
High interest rates have also impacted household spending negatively. With consumption trailing population growth, per-capita household spending dropped by 0.4 percent in the second quarter.
