The Canadian economy expanded at an annualized rate of 3.3% in this year’s second quarter
as commodity prices soared and COVID-19 restrictions were eased nationwide.
Statistics Canada reported that gross domestic product (GDP) in Q2 outpaced the 3.1% growth
recorded in this year’s first quarter. However, the second quarter result fell short of the
consensus expectation of economists who forecast 4.4% annualized growth for the April
through June period.
After running hot during the first six months of the year, the Canadian economy now appears to
be slowing as interest rates rise to dampen inflation that is running at a 30-year high. The latest
data showed that the economy contracted by 0.1% in July after a weak 0.1% gain in June and
flat growth in May.
Economists are forecasting that Canada’s economic growth will decline to below 1.5%
annualized in the year’s second half and heading into 2023.
In Q2, Canada’s economy benefited from surging commodity prices. Owing to the commodity
boom, growth in nominal output rose 4.2% on a non-annualized basis, the strongest increase
since 1981.
Canadian businesses took advantage of strong commodity prices to accumulate $47 billion
worth of inventories. Inventory buildup was the biggest contributor to economic growth in the
second quarter, according to Statistics Canada.
Exceptional demand for commodities enabled Canada to outpace the U.S. economy, which
recorded two consecutive quarterly contractions, the technical definition of a recession.
The Bank of Canada had forecast 4% growth for the second quarter. The central bank has
increased its trendsetting overnight interest rate by 2.25 percentage points this year and is
expected to hike rates another 75 basis points at its next policy meeting on September 7.
The Canadian dollar dropped to its lowest level since mid-July at $1.312 per U.S. dollar
following the GDP report. Short-term bonds rallied, pushing the yield on benchmark two-year
debt down five basis points to 3.618%.
