Canada: GDP growth hits two-year high in Q2 but underlying weaknesses remain
Economic activity surged in the second quarter, with seasonally-adjusted annualized (saar) growth accelerating from Q1’s upwardly revised 0.5% (previously reported: +0.4% saar) to 3.7% in Q2 and surpassing market expectations of 3.0%. In annual terms, economic growth ticked up to 1.6% in the second quarter (Q1: +1.4% year-on-year).
The external sector was chiefly behind the acceleration in the headline growth figure. Exports of goods and services soared 13.4% in seasonally-adjusted annualized (saar) terms, after falling 3.3% in the first quarter. That said, export growth was flattered by an increase in energy products as production curtailments in Alberta’s oil sands continued to ease, and was also boosted by a one-off jump in aircraft shipments in May. Moreover, imports of goods and services decreased 4.0%, contrasting the 8.7% increase the quarter prior. As a result, the external sector contributed 5.6 percentage points to the second quarter’s headline growth, after subtracting 3.8 percentage points in the first quarter.
Domestic demand was frail in the second quarter, declining 0.7% following a 3.2% rise in the first quarter. Private consumption growth softened to 0.5% (Q1: +2.9% saar), while government consumption increased 2.5% (Q1: +1.3 saar). Furthermore, fixed investment contracted 6.6% in Q2, contrasting Q1’s 5.8% rise, and mainly driven by a sharp fall in non-residential investment. In contrast, residential investment rebounded after several consecutive quarterly contractions, which chimes with strong housing starts’ readings throughout the quarter.