31 Aug Q2 CANADIAN GROWTH REBOUNDED TO 2.9%
This morning, Stats Canada released the second quarter GDP figures indicating a sharp rebound in growth to its most robust pace in a year. Real gross domestic product growth accelerated to 2.9% (all figures quoted in annual rates), up sharply from the 1.4% pace in Q1. The Q2 result is only slightly above the Bank of Canada’s 2.8% forecast released in the April Monetary Policy Report, tempering the expectation of a BoC rate hike at next Wednesday’s policy meeting.
First quarter growth had been depressed by a plunge in housing* (see note below), which fell by a whopping 10.5% annual rate in Q1. Investment in housing increased to a modest 1.1% annual rate in the second quarter. Declines in ownership transfer costs continued, but at a more modest pace than in Q1, while new residential construction contracted for the first time since the third quarter of 2016. However, these declines were more than offset by a sharp gain in outlays for renovations.
The strengthening growth in Q2 mainly reflected a surge in exports (+12.3%)–the biggest quarterly gain since 2014–due in part to notable increases in energy products and consumer goods, particularly pharmaceutical products. Exports of aircraft, aircraft engines, and aircraft parts increased sharply on higher shipments of business jets to both the U.S. and non-U.S. countries. Exports of services edged down a bit. Net exports (exports minus imports of goods and services) grew at a 6.5% annual rate in Q2 compared to 4.2% in the prior quarter.
Also boosting growth was stronger consumer spending. Household final consumption expenditure (+2.6%) increased at more than twice the pace of the first quarter, reversing the downward trend over the previous three quarters. Growth was attributable primarily to outlays on services (+3.2%), which outpaced outlays on goods. Housing-related expenses (housing, water, electricity, gas and other fuels), up at a 2.4% annual rate, contributed the most to the widespread growth in consumption of services.