The Canadian economy is stagnating

Real gross domestic product (GDP) was basically flat in May after rising 0.3% in April, Statistics Canada showed on Friday. Goods production fell by 1%, but services increased by 0.4%.

Posted at 8:50am

Andre Dubuc

Andre Dubuc
The press

Year-on-year, comparing May 2022 to May 2021, the economy grew 5.6% after inflation.

Of the 20 areas of activity, 14 recorded an increase in growth.

Among the sectors that stood out, transportation and warehousing rose 1.9% in May for the fourth straight month; the most significant increases were recorded in air transport (+14.1%) with the resumption of travel. The sector has yet to catch up with the drop caused by COVID-19, the level of activity is around 7% lower than before the pandemic.

Manufacturing fell for the first time in eight months, falling 1.7% in May after seven months of growth.

Construction activity fell for the second straight month, down 1.6% in May, on the back of a strike by unionized Ontario construction workers.

growth in the second quarter

According to preliminary figures from June, real gross domestic product (GDP) grew 1.1% in the second quarter of 2022, according to Statistics Canada. The final figures will be announced on August 31st.

The Canadian figures come a day after the US economic statistics. In the second quarter, real GDP in the United States contracted by an annualized 0.9%. In the first quarter, the decline was 1.6%.

“Advanced information shows that real GDP increased by 0.1% in June, driven by higher output in construction, manufacturing and accommodation and catering sectors,” the federal agency said.

Heading for a recession in Canada?

“Overall, production growth in the second quarter is in line with our forecast of 4.5%. [annualisée] RBC economist Carrie Freestone said in a note to clients.

“All indications are that the Canadian economy is exceeding its long-term capacity limits,” she continues. The unemployment rate is still extremely low at 4.9%. Tightness in the labor market continues, although early signs suggest that strength is fading in the near term. […] Inflation remains too high and the Bank of Canada continues its aggressive rate hike policy. Further rate hikes are still expected to help cool consumer demand and inflationary pressures further. We expect GDP growth to slow further towards the end of the year before fully declining in mid-2023.”

As for the Desjardins Group, we note the significant slowdown in housing construction. “The May numbers and the preliminary June result support our view that growth will decelerate very rapidly in the second half of 2022,” writes Randall Bartlett, Senior Director, Canadian Economy. The Bank of Canada’s significant and continued interest rate hikes will be the primary cause of this slowdown. In fact, weakness is increasingly coming from interest-rate sensitive sectors such as housing, but could spread further. And while we don’t expect a recession in the third quarter, we estimate the probability of such a phenomenon in Canada next year to be around 50%. »

Leave a Comment