Quick take

GDP Growth Ends its Two-Month Losing Streak

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  • The Canadian economy grew by 0.7 per cent in June, in line with Statistics Canada’s (StatCan) preliminary estimate. Second quarter GDP contracted by 0.3 per cent, mostly due to declines in home resale activity and exports. This left GDP 1.5 per cent below its pre-pandemic (February 2020) level.
  • StatCan’s advance estimate for July shows a 0.4 percent decrease in GDP mainly due to declines in manufacturing, construction, and retail.
  • Both the goods (+0.9 per cent) and services (+0.7 per cent) sectors grew in May. On the goods side, utilities (+3.6 per cent) surged on higher demand, especially due to an increase in electric power generation, transmission and distribution which was up 4.4 per cent. The mining, oil and gas sector also picked up in June with output expanding by 1.7 per cent.
  • In terms of services, re-openings in some provinces contributed to a growth in accommodation and food (+15.0 per cent), retail (+ 4.0 per cent) and arts, entertainment, and recreation (+6.4 per cent) industries. The transportation and warehousing sector (+1.1 per cent) also grew, powered by air transportation which was up 85.9 per cent.

Key implications:

  • After two months of negative GDP growth, the economy’s downhill trek ended in June. Accelerated vaccination programs allowed some provinces to relax restrictions. This prompted Canadians to start spending on high-contact services, including indoor dining, travel, and recreation.
  • Looking ahead, the bounce back in June will take some wind from July’s production. This doesn’t bode well for the start of the third quarter. Still, we expect the Canadian economy to do better than StatCan’s preliminary estimate of a 0.4 per cent decrease in July. Provinces and territories continued to ease restrictions throughout July, allowing for more economic activity, especially in the services sector.
  • While June’s GDP print is good news, not everything is coming up roses. The Delta variant is building momentum, with cases rising in several provinces. But given the high vaccination rates, a protracted U-turn in economic activity is unlikely. Still, a sustained increase in cases and subsequent restrictions risk delaying the economic recovery. A slower recovery will affect how policymakers adjust their plans to taper off financial support to millions of Canadian households and businesses.

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