While there are signs of a slowdown in the United States and elsewhere in the world, Canada’s economy is still holding up. Gross domestic product rose 0.8% in the second quarter, a compound annual growth rate of 3.3%.
Posted at 8:56
Updated at 4:38 p.m
That’s less than the 4% growth forecast by the Bank of Canada in its July forecast, but it’s “far from disaster,” commented CIBC economist Andrew Grantham.
National Bank economists agree. “The performance of Canada’s economy is quite enviable compared to the rest [des pays] the G7,” say Matthieu Arseneau and Alexandra Ducharme in their comments to investors.
Consumers returning to the office, going out more and traveling again drove growth in the second quarter. Expenditure on clothing and footwear on the goods side, as well as air transportation, food and alcoholic beverage services and accommodation, rose sharply in April, May and June, Statistics Canada reports. Overall, consumers increased their spending by 9.7%.
On the other hand, home investment, which includes home renovation spending, fell 27.6%, an unexpectedly large drop, after two quarters of strong growth. “Weak housing investment surprised forecasters,” said Randall Bartlett, senior director, Canadian Economy at Desjardins. As rising interest rates begin to cool the housing market, this downward trend will continue in the third quarter, he said.
The other surprise of the second quarter concerns imports, which posted a spectacular 30.5% increase, more than offsetting the increase in exports, which were nonetheless stimulated by the high price of crude oil. The resumption of travel and the purchase of very popular hybrid and electric cars, combined with high gas prices, partly explain the increase in exports, according to Statistics Canada.
On the way to a 75 point increase?
The second quarter picture does not detract from the Bank of Canada’s desire to raise interest rates to combat inflation, which remains very high at 7.6% (July figures).
Preliminary estimates from Statistics Canada suggest the third quarter started with the economy contracting 0.1% in July and all signs point to growth slowing by the end of the year.
Many economists are still expecting an increase of 75 basis points after the surprising key interest rate increase of 100 basis points or 1% in July. If this proves to be the case, the key interest rate will rise to 3.25%, i.e. above the so-called neutral threshold of 3%, above which the recession risks could increase significantly.
The Bank of Canada’s next interest rate decision will be announced on Wednesday, September 7th.
decline in the savings rate
Meanwhile, Statistics Canada’s preliminary reading for July points to a 0.1% decline. Economists generally expect an economic slowdown.
The extent to which Canadians feel the downturn will depend on their personal circumstances, Porter said — including the sector they work in and whether they are borrowers or savers.
Additionally, wages rose 2% in the second quarter, with Ontario and Alberta the largest contributors to the national increase, according to Statistics Canada. Wage growth in the Atlantic provinces was nearly double domestic for the quarter.
As households’ disposable income rose, their savings rate fell to 6.2% from 9.5% in the first quarter, mainly due to inflation. However, the savings rate remains well above pre-pandemic levels — at 2.7% at the end of 2019. Although the report includes the overall saving rate, Statistics Canada found that the saving rate tended to be higher among people in the highest income brackets.
“While these estimates suggest that the resilience of net household savings is sustained, inflationary pressures on consumption and trends in employee compensation are likely to be key drivers of future results,” the agency said in its report.
With the Canadian Press