The Canadian economy is bracing for continued weakness as the Q2 GDP report is expected to show further signs of decline. With a projected 1.4% increase in GDP (annualized rate) for the second quarter, this falls below Statistics Canada’s preliminary estimate of 2% just a month ago. This marks the 7th out of the last 8 quarters where output per capita has decreased.
Factors contributing to the anticipated decline in GDP growth in Q2 include a shift towards personal spending on services, which has shown resilience despite a slowdown in momentum towards the end of the quarter. Conversely, spending on goods is expected to have weakened, reflecting a decrease in retail sale volumes by 0.3% in Q2. Additionally, residential investment is projected to fall due to a decrease in home sales during the quarter. However, investment in structures is likely to see growth, buoyed by increased activity in the engineering and construction sectors.
The momentum of economic growth in Q2 is predicted to have tapered off towards the end of the quarter, with June output declining by 0.1%. This decline is more pronounced than the 0.1% increase estimated in the advance report a month prior. The manufacturing sector experienced a significant drop in sale volumes by 2.1%, while oil and gas drilling activity also decreased, resulting in a 0.5% decline in goods production. On the other hand, the service-providing sector is expected to have remained relatively stable, showing little change from May. Wholesale sale volumes fell by 0.9% in June for the second consecutive month, while retail sales volumes remained largely unchanged with a slight increase of 0.1%. However, there was a notable uptick of 3.4% in home resales, providing a partial offset to the overall economic softening.
The Canadian economy’s per-capita basis is likely to have continued to weaken in both June and Q2 as a whole, given the sustained population growth. This trend reinforces the Bank of Canada’s perspective that the economy has softened enough to maintain inflation on a downward trajectory. As a result, it is anticipated that the Bank of Canada will implement another 25 basis points rate cut in September.
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Impact on Labour Market
The upcoming release of the June SEPH data will be closely scrutinized for any indications of further weakening in the Canadian labour market. With a projected slowdown in wage growth, in line with diminishing job openings, recent business surveys have also pointed towards a decline in hiring demand across Canada. U.S. Economic Outlook
In the United States, personal consumption is expected to have increased by 0.4% in July, slightly higher than the previous month’s 0.3%, driven by robust retail sales. Personal income is forecasted to have risen by 0.1% in July, reflecting the slower wage growth observed in the July payroll report. Railway Shutdown Resolution
The recent shutdown of Canada’s two main railroad companies is anticipated to be short-lived, as the Federal Government intervenes to push the parties towards resolution and binding arbitration.
In the United States, personal consumption is expected to have increased by 0.4% in July, slightly higher than the previous month’s 0.3%, driven by robust retail sales. Personal income is forecasted to have risen by 0.1% in July, reflecting the slower wage growth observed in the July payroll report.
Railway Shutdown Resolution
The recent shutdown of Canada’s two main railroad companies is anticipated to be short-lived, as the Federal Government intervenes to push the parties towards resolution and binding arbitration.
Despite the challenges facing the Canadian economy, there may be opportunities for growth and recovery in the coming months. By closely monitoring key indicators, policymakers and businesses can navigate the current economic landscape with agility and foresight.
