Canadian GDP growth slows to 1.7 per cent in second quarter

What the data tells us and what economists are saying

To recap:

  • The Canadian economy grew at 1.7 per cent annualized between April and June, Statistics Canada said today.
  • It was a marked slowdown from the first quarter but one analysts largely expected. Still, the 1.7 per cent pace was well above the Bank of Canada’s latest forecast, which had projected one per cent annualized GDP growth in the second quarter of 2013.
  • First quarter GDP growth was also revised down to 2.2 per cent from 2.5 per cent.
  • Despite the general slowdown, Canadian consumers were in the mood for some shopping. Household spending grew at 3.8 per cent annualized, the strongest pace since the fourth quarter of 2010. A whopping one-third of that went into car and truck purchases.
  • Despite a pick-up in personal disposable income growth, sustained spending meant the household savings rate dipped slightly, to 5.1 per cent from 5.3 per cent.
  • Residential investment, which grew at 5.4 per cent annualized after contracting in the previous nine months, was the only other bright spot. Notably, growth came from renovations and sales of existing homes, rather than construction activity, which contracted.
  • Exports, which had lead the first quarter’s healthy growth pace, were lacklustre, as were imports.
  • Business investment declined 2.5 per cent, reflecting, in part, the construction strike in Quebec.

What the analysts say:

  • Growth slowed as expected, but for unexpected reasons. Analysts had been ready to chalk up the weakness to the flood in Alberta and the construction strike in Quebec. Those temporary shocks took a smaller toll than most forecasts predicted, suggesting the economy might be suffering from less transitory ailments.
  • TD’s Leslie Preston remained moderately optimistic, predicting that a likely boost from post-flood reconstruction in Alberta and better growth in the U.S. will propel GDP growth to between two and 2.5 per cent in the third quarter.
  • CIBC’s Avery Shenfeld and RBC’s Paul Ferley said the Bank of Canada will probably revise down its strong third-quarter call given that the economy will be recovering from a shallower-than-predicted dip in the April-to-June period.