May 23, 2018

Canadian economic growth 'gangbusters' in second quarter thanks to consumers

01 September 2017, 01:57 | Simon Arnold

Canadian economic growth 'gangbusters' in second quarter thanks to consumers

David Rosenberg: With Canada's economy on fire, I'm turning more bullish on the loonie

It's more than double the pace of the first three months of 2017 and better than original estimates for the second quarter.

And that was before Thursday's release of GDP data from Statistics Canada, which showed Canada's economy expanded by a very strong 4.5 per cent, annualized, in the second quarter of 2017. This shattered market expectations for a 3.7% increase, according to economists at Royal Bank of Canada, and follows a 3.7% advance in the January-to-March period.

Gross domestic product, a broad measure of the goods and services produced across the US, rose at a seasonally and inflation-adjusted annual rate of 3% in the second quarter, the Commerce Department said Wednesday.

Most experts believe the central bank will raise interest rates just once more this year, but a faster economy or an increase in wages or inflation could prompt policymakers to move more quickly to tighten monetary policy and shrink the Fed's balance sheet in 2018. Activity expanded faster in the spring than initially expected, and the composition of GDP in the quarter bodes well for continued strength over the rest of the year. "And while it was once again consumers in the driver's seat, another strong quarter of income growth meant that households were able to increase their savings rate a touch while still keeping their wallets open".

For the entire year, Mark Zandi, chief economist at Moody's Analytics, is forecasting growth of 2.1 percent.

However, history tells us that once rebuilding kicks in, the net impact of disasters on national GDP tends to be small and short-lived (even Katrina had no more than a fleeting effect on GDP growth), so we should still be on track for a solid economic performance through the rest of the year.

Gross domestic product grew at an annualized 4.5 percent pace, handily topping forecasts for 3.7 percent and making for the best rate since the third quarter of 2011.

This is the strongest two-quarter growth since 2002, in which there was a half-year increase of 2.1%.

Investment by businesses also improved to growth of 6.9 percent, reflecting higher spending on structures, equipment and intellectual property.

As it stands, traders think there's about a one-in-three chance of that happening.

The quarterly GDP growth rate was above 3% eight times during President Barack Obama's eight years in office.

With good news about Canada's economy rolling in on a regular basis in recent months, Canadians are feeling pretty positively about the future. Some are now saying that the devastation from Hurricane Harvey could shave about a half-percentage point off growth this quarter.

The likelihood rises to more than 85% between now and the end of the year.

"Overall the USA economy and labor market remain in good shape, and will easily withstand any temporary drag from Harvey", Gus Faucher, chief economist at PNC Financial, wrote in a report on Wednesday.

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