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Canada’s GDP Growth Levelled Off in June, Appears Set to Stay Flat in July

Canadian Economics

By: Kiefer Van Mulligen

  • In expenditure terms, Canada’s real GDP grew by 0.5 per cent in the second quarter of 2024 following a 0.4 per cent increase in the first quarter. Meanwhile, GDP by industry was flat in June on the heels of a 0.1 per cent increase in May, with a preliminary estimate of flat growth again in July.
  • In expenditure terms, the expansion of government consumption expenditures, and investment in engineering structures and machinery and equipment were key contributors to growth in the second quarter of 2024. Conversely, declining exports, residential construction, and household expenditures on goods dragged growth.
  • For the month, goods-producing industries were the main drag, with falling output in the construction and manufacturing industries driving the weakness. Not all goods-producing industries showed softness, however. Real GDP in the utilities industry led growth among goods producers, expanding by 2.3 per cent in June.
  • Service-producing industries grew by 0.1 per cent, with the real estate, rental, and leasing, and finance and insurance industries posting notable gains. Output in the wholesale trade industry, however, fell by 0.7 per cent in June.

Insights

Canada’s real GDP expanded by 0.5 per cent in the second quarter of 2024. On a real per capita basis, however, real GDP fell by 0.1 per cent. Statistics Canada noted that this was the fifth consecutive quarterly decline. Strong population growth continues to help maintain economic growth despite the currently restrictive monetary policy regime. The robust aggregate growth figures in the second quarter add evidence to the thesis that we’re on the way to a “soft landing” where inflation can be brought down without triggering an economy-wide recession, although the economic performance after accounting for population growth paints a much bleaker picture. However, the signs that high interest rates are at least dampening growth may be more easily discerned from today’s data release. For example, household spending on durable goods, which typically falls as borrowing costs rise, declined in the second quarter.

Next quarter’s GDP figures could be aided by loosening monetary policy, but early results for July hint at near-term weakness. The Bank of Canada’s interest rate hikes were intended to slow the economy to bring down inflation. Now, this process is unwinding. The Bank cut rates by 25 basis points at its June and July meetings. With inflation on a downtrend, another cut in September is likely. Consumer spending, which comprises the bulk of the economy, could receive a renewed lift from lower borrowing costs in the latter half of the year. Canadians are still wary about the near-term outlook, however, and consumer confidence remains muted. Business confidence, which remains low, has ticked up slightly. Investment has been adversely affected by higher interest rates and will also likely pick up as the year unfolds. The flat flash estimate for no growth in July could signal more choppiness in the near term.
For more details about our analysis and projections of the Canadian economy, please explore our Canadian Five-Year Outlook.

For more details about our analysis and projections of the Canadian economy, please explore our Canadian Five-Year Outlook.

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