Economy beats Bank of Canada forecast with 2.1% growth
The Canadian economy grew at a faster-than-expected annualized pace of 2.1 per cent in the second quarter of the year, but early indications point to a loss of momentum going into the third quarter.
The rise in gross domestic product (GDP) was driven by growth in government spending and business investment, data released Friday by Statistics Canada showed. It beat the Bank of Canada’s forecast of 1.5 per cent and those of financial institutions, whose forecasts varied, with Royal Bank of Canada initially predicting 1.4 per cent growth and the Canadian Imperial Bank of Commerce forecasting 1.9 per cent.
Though growth was “modestly” better than expected, Andrew Grantham, an economist with CIBC Capital Markets, said momentum heading into the third quarter is weak with early estimates at 0.5 per cent annualized.
“Because of that we still see the Bank of Canada reducing interest rates by 25 basis points at each remaining meeting this year,” he said in a note after the data was released.
Per-capita GDP, which takes into account changes in population, fell by 0.1 per cent, a fifth consecutive quarterly decline, Statistics Canada said Friday.
Business investment in equipment and machinery increased by 6.5 per cent in the April-to-June period. Government spending was also a contributor to growth, increasing by 1.5 per cent as compensation and hours worked by employees rose.
“Details are not as strong as the headline number, by our count a surge in government spending accounted for 80 per cent of the second quarter GDP increase,” said Abbey Xu, economist at the RBC, in a note to clients.
Exports of goods and services fell by 0.4 per cent in the second quarter, driven by lower exports of metals, refined petroleum products and
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