Canada's economy posted strong growth in the second quarter, driven by high exports and domestic investments. After a slight decline in GDP growth in the first quarter led to fears of a technical recession, an upwards revision of those figures puts those notions in the "trash bin," according to one economist.
First quarter GDP revised higher, putting talk of a technical recession in the 'trash bin'
Canada's economy showed strong growth in the second quarter, thanks to a jump in exports and stronger domestic investment, according to Statistics Canada data.
The economy grew at an annualized rate of 3.3 per cent in the second quarter. For the month of June, GDP was up 0.3 per cent.
The second-quarter growth only one percentage point lower than what economists had expected, but well above the Bank of Canada's prediction of 2.5 per cent.
Exports rose 3.6 per cent, according to the data agency, largely because of higher auto exports.
Quarterly change in GDP in Canada
Quarterly change in GDP in Canada
Source:Statistics Canada
Residential investment also helped boost the economy, especially as home resale activity jumped up in Ontario, B.C. and Quebec in particular.
Strong growth
Business investment also grew as owners spent more on machinery and equipment in the second quarter. Business capital investment was up 2.3 per cent, Statistics Canada said.
Investments in computers and peripherals jumped 16.7 per cent, which the agency said was related to the kinds of processing units used in data centres.
Corporate incomes rose, largely thanks to the energy sector, boosted by higher gas prices. But the high cost of gas also acted as a drag on earnings for manufacturing firms, which saw their input costs rise.
On the consumer side, household spending rose 0.8 per cent as consumers invested more and spent more on cars and rent.
Overall, the quarterly report painted a general picture of strength.
"The improvement reflected more confident consumers, a somewhat stronger labour market, and, most importantly, businesses regaining enough confidence to invest in equipment and structures," wrote Dominique Lapointe, senior director of macro strategy for Manulife Investment Management, in a note to investors.
For the month of June, growth was solid across a number of industries, data showed. Some tourism and hospitality sectors got a lift from Canada hosting 10 games in the FIFA World Cup in June, the agency said, while manufacturing expanded for a third straight month.
Monthly change in GDP in Canada
Monthly change in GDP in Canada
Source:Statistics Canada
Technical recession in the 'trash bin'
Earlier this year, Statistics Canada data indicated the Canadian economy shrank marginally in the first quarter, raising debate about whether the country was in a technical recession.
But in today's release, the data agency revised the first-quarter results, showing that GDP in the first quarter was actually slightly positive, at 0.3 per cent annualized.
With the revision and the strong second-quarter growth, BMO economist Doug Porter said the "so-called technical recession has been sent to the trash bin."
But looking forward, things could get a lot rougher. Initial estimates for July indicate growth was flat, and trade war tensions with the U.S. paint a challenging picture of what's to come.
Ariane Curtis, senior North America economist for Capital Economics, wrote in a note that headwinds from tariffs make it unlikely that the second-quarter momentum will be able to continue.
BMO's Porter said similarly in his note to investors: "The third quarter is thus off to a tougher start, and it won't get easier in August and September with the wave of downbeat headlines."
The release comes just before the Bank of Canada's next interest rate decision next week, on Sept. 2. Porter predicts the central bank will hold the rate at 2.25 per cent, waiting to see how the tariff spat plays out in the economy before making any changes.
