Canada Economic Forecast

A flash estimate put GDP growth in Q2 at a little over 1% in quarter-on-quarter annualized terms, which would mark a slowdown from Q1’s 3.1% expansion. Data within the quarter was choppy, with GDP rising in April and May in monthly terms before falling in June according to provisional data. May’s growth was underpinned by the end of a strike by government workers and improved global supply chains, though fires and facility maintenance in Alberta province weighed on energy output. Turning to Q3, activity in the first half of July was likely held back by a port strike which reportedly disrupted USD 380 million per day in trade. In addition, unemployment rose and employment fell in July. In contrast, solid housing starts in the month bode well for residential investment, while a recent cash handout to low earners should be propping up spending.

Inflation rose to 3.3% in July, above June’s 2.8%. The reading was primarily due to a less favorable base effect for energy prices, and was notably above market expectations of 3.0%. Inflation is forecast to fall within the Central Bank’s 1.0–3.0% target range by Q4 on improved global supply chains, the effect of past rate hikes and a more favorable base effect.