Real GDP Jumped Up in May, Expected to Contract in June

Key Insights

Damage from extreme weather events is now more expensive and spreading to places where it was never an issue. While wildfires have been present in Western Canada for several years, the problem has emerged in Ontario, Quebec, and Nova Scotia. Tornadoes that were limited to southwestern Ontario and the southern Prairies have crept east toward the Capital Region and Montreal. More frequent and powerful storms like Hurricane Fiona place Eastern Canada at a greater risk of severe damage. This is seen most recently via the extreme rainfall and flooding in central Nova Scotia.

Real gross domestic product is growing but productivity is waning. Although strong immigration numbers have allowed the Canadian economy to expand, per capita gross domestic product has been on the downturn for some time now. Immigration does help address Canada’s aging population and labour shortages, but looking into the medium- to long-term, Canada’s standard of living will fall behind other developed countries if this trend continues. The lack of competition in Canada’s largest industries will continue to drive this downward.

The Canadian economy is nearing the 18-month mark since the beginning of interest rate hikes by the Bank of Canada. On average, monetary policy effects begin to take place approximately 18 months after a change in a central bank’s interest rate. The end of May marks 15 months since the first of many increases occurred. The interest rate hikes have already affected consumer price index (CPI) growth and unemployment. CPI growth came in at 2.8 per cent year-over-year in June, and unemployment jumped up 0.2 per cent month-over-month to 5.2 per cent in June. With a higher interest rate climate and Statistics Canada’s preliminary estimate of -0.2 per cent in June, a persistent economic slowdown is likely in the cards over the next couple of months.