E Canada’s Economy Rebounded A Bit In The Second Quarter

Canada’s real GDP advanced at a 2.9% annual rate in the second quarter of 2018, virtually double the much weaker expansion in the first quarter.

In comparison, real GDP in the United States grew at a 4.2% annual rate in the second quarter, underscoring the observation that in the current troubled international environment, the U.S. economy is on a faster growth trajectory than Canada

The Canadian economy’s rebound in the second quarter was driven mainly by a 2.9% increase in export volumes—the largest gain since the second quarter of 2014.

As the data in the following table illustrate, consumer spending accelerated in the second quarter to a 2.6% annual rate, business investment decelerated sharply to a 1.9% gain, exports soared at a 12.3% and inventory accumulation stayed at a fairly high level. The personal saving rate fell from 3.9% in the first quarter to 3.4% in the second quarter, as consumer spending outpaced the growth of disposable income.

On an attribution basis, both exports and imports were substantially higher in Q2, and net exports accounted for 1.6 percentage points of total growth in the quarter. On the negative side, inventory accumulation subtracted 0.4 ppts from total growth.

While Canada’s second quarter economic rebound was well received, nonetheless in the current environment the consensus is that the true underlying growth trend for the Canadian economy is closer to 2% rather than 3%.  

Indeed, on a year over year basis, the Canadian economy had only expanded by 1.9% as of the second quarter.

Even though the monthly industry data was flat in June, goods sector production expanded at a 5.2% annual rate in Q2, while the service sector expanded at a much slower 2.7% rate, double the previous quarter’s growth.