Canada Q2 GDP set to grow more than expected, big Sept rate hike seen
The Canadian economy most likely grew at an annualized rate of 4.6% in the second quarter over the first, boosting market expectations of another big interest rate hike in September.
The result outpaced the central bank’s July 13 forecast for 4.0% annualized growth in the second quarter, up from 3.1% in the first.
Statistics Canada said on Friday that gross domestic product was unchanged from the previous month in May, when a construction workers’ strike and chip shortages helped crimp growth. Analysts had expected the economy to shrink by 0.2%.
In June, the economy most likely expanded 0.1%, Statscan said in a flash estimate.
Earlier this month, the bank raised its main interest rate by 100 basis points in a bid to crush inflation, its biggest hike in 24 years, and said more increases would be needed. The bank says it wants to front-load its tightening to help avoid a recession.
After the rate hike, Bank of Canada Governor Tiff Macklem said the economy would likely make a “soft landing” without veering into a recession, though the path to avoiding one was narrowing.
Andrew Grantham, senior economist at CIBC Capital Markets, said the solid second-quarter growth and evidence that “supply constraints, rather than slowing demand, were holding back overall growth, meant the Bank of Canada is still on course to deliver another non-standard rate hike at its next meeting”.
The Canadian dollar was trading nearly unchanged at 1.2805 to the greenback, or 78.09 U.S. cents, on track for a second straight weekly gain.
The transportation and warehousing sector posted a 1.9% gain from April, with air travel jumping 14.1% on higher cargo and passenger movements.
The manufacturing sector contracted 1.7% in May following seven months of growth. The construction sector contracted for a second month in a row, down 1.6%.
Royce Mendes, managing director and head of macro strategy at Desjardins, said he continued to believe the Bank of Canada would raise rates by 50 basis points in September.