Canadian GDP Unexpectedly Falls 1.1% in Q2, Fueling Concerns of Economy’s Resilience

Canada’s economy unexpectedly contracted in the second quarter, giving rise to concerns over the strength of the recovery.

Statistics Canada reported on Tuesday that GDP slumped 0.3% in the second quarter, and is down 1.1% compared to the period between April and June of last year. The latest decline follows three straight months of quarterly growth, and is significantly below consensus estimates from economists polled by Bloomberg calling for an annual expansion of 2.5%. And, to further dampen economic sentiment, preliminary figures for July suggest that GDP fell by another 0.4% month-over-month.

The sudden decline in GDP during the second quarter was primarily fuelled by a sharp 17.7% drop in home ownership transfer costs, as well as a decrease in exports, which fell 4% in the second quarter. Household spending also failed to gain a strong foothold in the second quarter, inching higher by only 0.1%, as spending on goods dropped across 32 of the 48 categories.

“The problem, and you’re seeing this in the United States, too, is that you’re seeing contraction in consumer spending on consumer durable goods, because we’re just completely maxed out after blowing our brains out on everything you can see, touch or feel in 2020 and the early part of this year,” explained Rosenberg Research economist David Rosenberg to Bloomberg.

Following the report, the Canadian dollar slumped nearly 0.05% to around $1.26 per US dollar. The weaker than expected data will also have a significant impact on the Bank of Canada’s policy decision next week, which likely will not result in the anticipated reduction of asset purchases. Moreover, the report will also have an impact on the federal election campaign, potentially leading to criticism of Prime Minister Justin Trudeau’s leadership in the economic recovery.

Information for this briefing was found via Statistics Canada and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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