GDP growth slows to half a point: StatsCan

To no one’s immediate surprise, Canada’s economic recovery is slowing down. What is surprising is exactly how much it is stalling out.

According to a Statistics Canada report, Canada’s real GDP growth slowed to just 0.5% in the second quarter from 1.4% in the first.

On an annualized basis, economic growth was just 2.0%, well below the Bank of Canada’s forecast of 3.0%, but still better than the 1.6% second-quarter rate of increase in the U.S. economy.

Nominal GDP rose by 2.9% annualized, as corporate profits slid slightly and Canadian households became more cautious when it came to their spending. There were also significant declines in the home resale market.

“A clear slow-go recovery in the U.S. is sure to put a damper on Canadian economic growth in the second half of this year through its negative impact on exports and commodity prices,” said Diana Petramala, economist at the TD Financial Group. “But at the same time Canada will be grappling with some of its own domestic concerns. In particular, the sharp acceleration in household indebtedness and a cooling in the Canadian existing home market are expected to constrain consumer spending growth to a 2.0-2.5% pace going forward.”

Export and import volumes rose but growth in imports was the leader with mining, oil and gas, manufacturing and public sectors leading the GDP increase.

“The details in the second-quarter figures came in line with our expectations, with one notable exception: government. We expected to not only see the start of spring infrastructure projects, but also the nearly $1 billion spent on security for the G20 meetings, giving a lift to both quarterly government spending and the public sector’s contribution to growth in June,” CIBC chief economist Avery Shenfeld said in a release.

“While private security services likely contributed to June’s 0.8% gain in the administrative services category, the public spending got lost in the shuffle of reductions elsewhere, leaving an unremarkable role for government in both quarterly and monthly tallies.”

While slower economic growth usually stimulates calls for looser monetary policy, Douglas Porter, deputy chief economist, BMO Nesbitt Burns, is predicting another interest rate hike.

“Looking ahead, what you see here is what we’ll get for growth in the second half, with the economy expected to grow at a modest 2% average pace. In that environment, we will cling to the view that the BoC will hike rates one last time next week, and then pause,” he said.

(08/31/10)