Gross domestic product was flat in June, but overall growth in 2018’s second quarter came in at an annualized rate of 2.9%, slightly beating the 2.8% forecast by the Bank of Canada in its last Monetary Policy Report, according to new Statistics Canada data.
A 12.3% jump in exports was the biggest driver behind the quarterly growth; this was the biggest increase in exports since 2014. As well, imports grew 6.5% and household spending increased 2.6%.
The increase represents a sharp rise from the 1.4% annualized growth in Q1, which was held back by a 10.5% drop in housing, which was partly driven by the first decline in residential construction since Q3 2016.
BMO chief economist Douglas Porter said Q2’s growth was a bit of a “one-quarter wonder,” with increases not expected to continue through the rest of the year.
“Today’s report represents a nice bounceback in the economy after a three-quarter lull, but hardly suggest growth is poised to maintain anything close to this pace,” he said in a note to investors, saying the year as a whole will likely see an increase of around 2%.
The resource sector was the main reason for a lack of growth in June. An outage at Syncrude helped contribute to a 2.4% decline in non-conventional oil extraction, according to Porter.
“That factor will persist in July’s results, so we look for another so-so result next month,” he said.
A rate hike by the Bank of Canada (BoC) is unlikely next week, he said.
“[The BoC] likely required a blow-out upside surprise today to even get them to consider a rate hike next week, and instead we got a very mild downside surprise [in June],” he said.
“Provided there are no big shocks on the NAFTA front, we continue to circle the October 24 decision date as the most likely time for the next BoC rate hike.”
The Canadian dollar dropped three-tenths of a cent relative to the U.S. greenback on the morning’s news, settling around 77.05 cents U.S. as of press time.
@EmmaHampelBIV
