Canadian economic growth expectations lag in Q2; July estimate foretells contraction

Bank of Canada. Image credit: WikimediaCommons

Toronto: According to the expectations of the Economists there would be another aggressive interest rate hike by the Bank of Canada next week after the release of data showing the economy remained in relatively good shape during the second quarter of the year, Statistics Canada reports said.

Statistics Canada said Wednesday in its latest report on the real gross domestic product that the Canadian economy grew at an annual rate of 3.3 percent in the second quarter falling short of the agency’s preliminary estimate of 4.6 percent.

Tu Nguyen, an economist with accounting and consultancy firm RSM Canada, said there were few surprises in the GDP data when it’s broken down into its components.

Wednesday’s report said businesses ramped up their investments in inventories, as well as in engineering structures and machinery and equipment which served as the major contributor to growth.

Calling the Canadian economy as overheated, the Bank of Canada has been combating high inflation with a series of interest rate hikes.

It is being hoped by the central bank that higher borrowing rates will slow down economic activity and bring inflation back to its target of two percent.

The annual inflation rate reached 7.6 percent in July, and the Bank of Canada is expected to announce another supersized interest rate hike on Sept. 7.

Bank of Montreal is forecasting the central bank to raise its key interest rate by three-quarters of a percentage point next week

With economists expecting an economic slowdown ahead, an early reading for July points to a contraction of 0.1 percent.

Additionally, according to the Statistics Canada report with Ontario and Alberta contributing the most to the national increase, wages were up two percent in the second quarter adding that the Atlantic provinces’ wage growth for the quarter was almost double the national rate.

The saving rate for households declined from 9.5 percent in the first quarter to 6.2 percent, despite rising disposable income largely due to inflation. While the report provides the aggregate savings rate, Statistics Canada noted that savings rates tend to be higher among those in higher income brackets.

“Although these estimates suggest ongoing resiliency in household net savings, inflationary pressures on consumption and trends in employee compensation will likely be key determinants of future outcomes,” the agency was reported saying.

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