In what came as a shock to observers and authorities alike, the nation’s gross domestic product contracted in August after a flat reading in July, Statistics Canada reported last week.
The latest disappointment is another sign that the process of cooling is well underway from the blistering pace of growth in the 12 months through June, according to fiscal sector players.
“The run of amazing Canadian economic data is officially over, with growth coming back to reality in hurry,” Bank of Montreal chief economist Doug Porter stated in a note to investors, as quoted by Bloomberg. “The two-month lull in activity pounds home the point that the frothy growth of the past year is over and done.”
If the economy fails to expand in September, third-quarter annualized growth would be on pace for a sub-2% increase, after a gain of 4.5% in the second quarter. The Bank of Canada projected growth of 1.8% in the third quarter. Economists surveyed by Bloomberg News forecast an average 2.1% expansion in the second half.
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The nation’s currency dropped as much as 0.6% to C$1.2915 against the U.S. dollar as of November 1, which may fuel concern the Bank of Canada’s caution about raising interest rates will only deepen.
Excluding inflation, Canada’s economy grew by 4.2% in the second quarter from a year earlier, a pace not seen since 2000. Employers added 312,700 jobs over that time.
Even with an anticipated second-half slowdown, Canada is headed for more than 3% growth for all of 2017. That would end a five-year stretch of sub-3% readings that’s already tied as the longest on record in data back to 1926.
Most forecasters, including the Bank of Canada, expect growth to slow to below 2% by 2019.
A synchronized global recovery and rising global trade volumes are backstopping the growth, along with the bottoming out of the oil shock in western Canada and soaring home prices in Toronto and Vancouver.
Government policy has also helped. Federal deficit spending, particularly the enhanced child benefit system, has supercharged consumption.
In the process, the boom has allowed the economy to soak up all its unused resources. According to Bank of Canada estimates, the economy had been awash in excess capacity since the recession before the recent pick-up in growth.
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