Canada GDP unexpectedly shrinks in second-quarter

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Canada’s economy shrank in the second quarter, contracting at an annualized pace of 0.2 per cent, Statistics Canada says.

The second-quarter reading was lower than growth of 1.2 per cent expected by analysts and the 1.5 per cent growth forecast by the Bank of Canada.

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A decline in housing investment, lower inventory accumulation and slower exports and household spending contributed to the slowdown, Statistics Canada said on Sept. 1.

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Housing contined to decline, falling 2.1 per cent, the fifth quarterly drop in a row. New construction was down 8.2 per cent, with the slump occurring in every province except Nova Scotia. Renovation activity was down 4.3 per cent.

The agency also revised growth for the first-quarter down from 2.6 per cent from 3.1 per cent.

“We are sticking to our view that Canada will experience a mild contraction, and today’s surprisingly soft Q2 obviously makes that outcome much more likely,” said BMO chief economist Douglas Porter after the data came out.

The GDP numbers were the last major data point before the Bank of Canada makes its interest rate decision on Sept. 6.

“The broad softening in the domestic economy will almost certainly move the BoC to the sidelines at next week’s rate decision after back-to-back hikes,” said Porter. “Between the half-point rise in the unemployment rate, the marked slowing in GDP, and some cooling in core inflation, it now looks like rate hikes are over and done.”

More to come …