The Canadian economy is slowing more than expected

2023-07-30 02:34:14

Economic growth slowed even more than expected in the second quarter in Canada. But she had extenuating circumstances.

Canada’s real gross domestic product (GDP) rose 0.3% in May, reported Friday Statistics Canada. This is better than the 0.1% increase the previous month, but this increase seems to have been immediately followed by a monthly pullback of 0.2% last month, according to the preliminary information already available.

This would mean that after a slump (–0.1%) in the fourth and last quarter of 2022, followed by a strong rebound (+3.1%) in the first quarter of the year, the Canadian economy is then fell back to an annualized growth rate of just 1% in the second quarter. This would be even less than the Bank of Canada expected (+1.5%) in its most recent economic forecastsjust two weeks ago.

It must be said that beyond the more fundamental factors, the Canadian economy must also come to terms with all sorts of more cyclical events. The end of the strikes in the federal civil service notably contributed to the 0.5% increase in activity in the services sector, while the first decline in five months in the energy sector (–2.1%) was caused by the Alberta wildfires. For their part, the wholesale trade (+2.9%) and manufacturing (+1.6%) sectors largely benefited from the reduction in supply chain problems, particularly in the area of automobile.

At times, seemingly contradictory trends can be observed. In the real estate sector, for example, growth continued to be strong for offices of real estate agents (+7.6%) on the back of home resale activity in key markets, such as Toronto , Montreal and Vancouver, while residential construction fell for the first time in five months (–1.8%).

Quebec, the United States, Europe

Earlier this week, the Quebec Institute of Statistics reported a 0.4% decline in Quebec’s real GDP in April, which wiped out four months of consecutive increases. Although, again, influenced by temporary factors, these results were those of an economy afflicted with “several weaknesses that will persist over the coming months,” explained Desjardins Group economist Hélène Bégin.

The Canadian economy is not alone in stalling or outmaneuvering forecasters. On Thursday, the US Commerce Department reported that economic growth accelerated in the second quarter in the United States, to an annualized pace of 2.4%. Experts had rather expected it to stay at 2%, as in the first quarter, or to fall back to around 1.6%. But consumer spending and business investment wanted it otherwise. At least for the moment.

In Europe, recession now looks inevitable, at least in Germany, where growth fell to neutral in the second quarter after declining successively by 0.4% and 0.1% in the previous two quarters, the Agency reported. France-Presse on Friday. France (+0.5%) and Spain (+0.4%) seem to have fared much better.

What will be next?

The specter of recession hangs over all these economies, especially since the surge in inflation and the muscular response of central banks to break its momentum by raising their interest rates.

The Bank of Canada has raised its own key rate by 4.75 percentage points in just 17 months and says it is ready to do a little more if the strength of consumers and investors delays the return of inflation to its 2% target. Two weeks agoit forecast an annualized expansion rate of 1.5% in the 2^e et 3^e quarters, for real economic growth of 1.8% this year and 1.2% next year, compared to 3.4% last year.

Like the months of May and June, the Canadian economy will probably continue to swing back and forth for a long time, observed in a brief analysis Friday Douglas Porter, chief economist at the Bank of Montreal.

Rather than a recession, Matthieu Arseneau and Alexandra Ducharme, of the National Bank, prefer to speak of an “economic lethargy” which will result in an “anemic” growth of 1.4% this year and 0% in 2024.

Tony Stillo, of the analysis firm Oxford Economics, does not believe, for his part, that Canada can avoid at least a modest recession. He even expects it to start during the current quarter.