Slowing growth could keep Bank of Canada on sidelines

financialpost.com:

Canada’s economic growth slowed in the second quarter after a strong start to the year, data from Statistics Canada showed Friday.

Gross domestic product grew 0.3 per cent in May, matching economists’ estimates, but preliminary data show it shrank by 0.2 per cent in June, the first contraction this year.

The numbers suggest the economy grew 1 per cent in the second quarter, slower than the Bank of Canada forecast and much weaker than the 3.1 per cent growth seen in the first quarter.

Here is what economists say about the new numbers and how they may affect the Bank of Canada’s next interest rate decision.

Today’s reading points to some slowing momentum heading into the summer months. Since April, GDP data has been impacted by a series of transitory shock whose net effects make the data more difficult to interpret. Looking ahead, headline GDP figures may continue to be skewed by the government’s grocery rebate and the effects of the B.C. port strike in July. All said, slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the BoC to remain on hold at its next meeting.

Canadian GDP remained resilient in Q2. But growth is starting to look weaker by the end of the quarter – wholesale sales posted one of the largest declines in history in June. The resilience in consumer demand we’ve seen to-date is not to be overlooked, adding to sticky inflation pressures. But momentum in services spending also appears to be waning – gross sales at food services and drinking places have been trending at levels below this January for months.

The BoC won’t hesitate to hike interest rates further if necessary, but we maintain the view that the worst is yet to come for households with pressure