Canada’s Economy Accelerates at Fastest Pace in Two Years

By Joel Cuttiford

According to reports, Canada’s economy accelerated at its fastest pace in over two years in the second quarter, implying that the country could finally be emerging from a period of stagnant growth.

Statistics Canada reported today that GDP expanded at an annual rate of 3.1 percent in the second quarter, led by exports and household spending.  GDP grew 0.3 percent in June from May, according to Statscan.

Both figures were better than most on Bay Street had projected. The consensus forecast was for growth at a 2.5 percent rate in the quarter and a 0.2 percent gain in June from May.  Revisions left the first quarter even more disappointing than the dismal annual rate of 1.2 percent that Statscan first reported. The agency now says GDP grew at annual rate of 0.9 percent over the first three months of the year, reflecting a sluggish winter that slowed trade and weighed on household spending.

The lift is due to demand in the United States, where GDP surged to an annual growth rate of 4.2 percent in the second quarter. Exports, which the Bank of Canada says are central to the economy picking up steam, jumped 4.2 percent from the first quarter, reversing a small decline over the first three months of the year.  Household consumption increased 0.7 percent from the first quarter.

The GDP data are the last significant indicators the Bank of Canada will receive before it restates its policy position next week. Evidence of stronger economic growth will diminish lingering talk that the central bank could cut interest rates. Still, central bankers will want to see more evidence that Canada’s economy has accelerated.  In an interview last week, Governor Stephen Poloz clarified that he is in no hurry to raise the benchmark interest rate from one percent. He said there is still “slack” in the labor market and that the economy has “lots of room to grow” before it puts upward pressure on inflation.

“A stronger than expected GDP report, but will the Bank of Canada be satisfied with the composition?” Jimmy Jean, an economist at Desjardins Capital Markets in Montreal, asked in a note. “We are skeptical.”

In its latest economic outlook, the Bank of Canada predicted GDP would expand at an annual rate of 2.5 percent in the second quarter.  The economy grew at a rate of 2.7 percent in the fourth quarter.

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