EconoFACTS

July 31, 2024 | 09:13

Canadian GDP — Still Some Growth in the Pipeline

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Canadian real GDP rose by a respectable 0.2% in May, topping initial estimates by a tick, and the early read on June points to a modest 0.1% gain, also better than expectations. In combination with a solid 0.3% rise in April, StatCan's preliminary estimate for Q2 growth is +0.5%, or just over a 2% annualized rate. That's above the Bank of Canada's (and our) latest estimate of 1.5% for the quarter. Even with the mildly better-than-expected performance through the spring and early summer, note that GDP is still up by just a little more than 1% over the past year, and that's likely what it will average for all of 2024 (and it grew 1.2% in 2023 as well). That compares with the BoC's latest estimate of potential growth of something in the mid-2% range—juiced by soaring population—so slack is still building.

Digging into the details, the May advance was led by the biggest gain in more than a year in manufacturing (+1.0%), although the sector is still down from a year ago (-2.1%). Service sectors reported a small 0.1% gain overall with losses in retail and wholesale offset by solid growth in hospitality, education, public admin and small increases in most other sectors. Notably, the TMX pipeline commenced operations in the middle of the month, and that helped lift crude oil & other pipeline transportation 1.5%. However, that rise was countered by a drop in natgas pipeline activity as well as a 3.5% drop in oilsands production (on maintenance work). Suffice it to say that the initial growth push from the start-up of TMX was underwhelming, but the impact could build over time.

The advance estimate for June GDP came at +0.1%, but, in light of the data on hand so far, the risks for the final estimate are tilted to the downside. June's gain was led by a big bounce in construction and finance, which apparently more than offset drops in factory and wholesale activity. If June is indeed positive, that provides a much better handoff for Q3 growth than we had expected, making the BoC's 2.8% forecast a bit more achievable—we had penciled in 1.5% for Q3. Even if summer's growth doesn't quite live up to the Bank's ambitious call, the decent Q2 result could compensate.

Bottom Line: Make no mistake, the Canadian economy is paddling fast just to keep its head above water, but it is still managing to slowly move forward. All told, these latest GDP figures should tamp down talk of the Bank being wildly behind the curve, and quiet rumblings about the BoC potentially looking at a 50 bp cut. (Such a rapid step-up in easing would require extremely weak data and/or much milder core inflation.) Canada's economy is still walking that fine line of struggling to keep upright, but just staying out of serious trouble, consistent with continued, measured interest rate cuts.

Table 1 - Canada — Monthly Real GDP

(month/month % change)

Source: BMO Economics, Haver Analytics