Why this economist predicts slower Canadian GDP after Q2

Economists expect vigorous growth for Q2 when Statistics Canada releases its quarterly GDP data on August 31.

A recent Bloomberg survey showed a consensus forecast of 3.7% annualized real GDP growth in the quarter, indicating Canadian economic growth is picking up.

But Desjardins senior economist Benoit Durocher suggests Canada is reaching high point before a period of decelerated growth in the second half of this year and well into 2018.

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Durocher says the OECD’s Business Cycle Clock — which signals business cycle turning points six-to-nine months in advance — indicates Canada is about to move from above trend to below trend.

He predicts Canada’s quarterly change in real GDP could slow to an average of about 2% in the second half of 2017 and through 2018. That, Durocher writes, would have implications for interest rates.

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“The Canadian economy’s strength prompted the Bank of Canada to move up its key rate hike, with an initial 25 basis-point increase on July 12, 2017. Another increase should be ordered in October,” he says.

“[T]he recent movement in the leading indicator and the expected slowdown in economic growth should prompt monetary authorities to proceed more gradually. As such, only two increases in the target for the overnight rate are expected for 2018, followed by two more increases in 2019.”

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