Canada’s Economy Has Accelerated Sharply This Year

The accelerated growth in Canada’s real GDP in the second quarter astounded many economists.

Real GDP expanded at a 4.5% annual rate in Q2 following an impressive 3.7% advance in the previous quarter. The powerful second quarter expansion lifted Canada’s real GDP 3.7% higher than the same quarter a year earlier.

Growth in Q2 was partly due to a rebuilding lift from last year’s wildfires, but growth in more recent quarters has also been supported by rising confidence, some stability in the energy industry and a rebounding job market.

While economic growth is expected to moderate a bit in the second half of the year, nonetheless it is very encouraging that virtually all of the recent economic surprises have been positive for next year’s projections. As a BMO web report of August 31 indicated, the Canadian economy is currently on track to grow faster than 3% this year.

Note as well that the personal saving rate also increased in the second quarter, which should have made the rapid growth harder to achieve. However, there was a huge increase in household income in the second quarter which allowed consumer spending to still increase at a healthy 2.6% annual rate.

Nonetheless, Canada’s blistering growth rate of the first-half of 2017 will likely not be repeated in the second-half of this year. This is because both job creation and household incomes are expected to grow more slowly over the next two quarters. As well, the wealth affect from rapidly rising housing prices is now starting to operate in the reverse direction. Finally, going into 2018 we should expect further hikes in Bank of Canada interest rates and a continuing strong Canadian dollar – i.e. in excess of 80 cents U.S. 

(Click on image to enlarge)

(Click on image to enlarge)