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Canadian economy smashes expectations with 4.5 per cent growth

The manufacturing sector was a bright spot in an overall ho-hum GDP report for the Canadian economy in August.
The manufacturing sector was a bright spot in an overall ho-hum GDP report for the Canadian economy in August. Chris Young/CP

Canada’s economy posted another quarter of gangbusters growth, expanding at an annualized rate of 4.5 per cent. That was far above economists’ consensus forecast of 3.7 per cent for the April to June period.

The result, which comes after robust growth in the first quarter, marks Canada’s fastest growth in the first six months of a calendar year since 2002.

“Wow. There seems to be no stopping Canada of late,” TD economist Brian DePratto gushed in a client note analyzing the data release.

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“Even the naysayers will struggle mightily to find fault in this rock-solid report,” wrote BMO’s Douglas Porter.

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The numbers show broad-based growth driven by household spending and exports, particularly in the energy sector.

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But while analysts have become accustomed to admonishing Canadians about overspending, this GDP report elicited no such warnings.

Consumer spending right now is underpinned by “rising household income on the back of healthy job gains,” wrote DePratto.

Indeed, families appeared to have room to both spend and save more, with the household savings rate rising a notch, to 4.6 per cent from 4.3 per cent in the first quarter.

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Statistics Canada’s Survey of Employment, Payrolls, and Hours on Wednesday showed wage growth accelerating to 2.7 per cent year-over-year in June, the fastest pace since December 2015.

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Exports expanded 2.3 per cent from April to June, up from 0.4 per cent in the first three months of the year.

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And the economy “easily [rode] over the start of a cool down in housing,” noted Porter.

Residential investment dropped 4.7 per cent in the second quarter, which likely reflected, in part, slowing home sales in Southern Ontario, after the province introduced legislation to cool off the real estate market.

Still, construction activity rose 2.0 per cent in the month of June, partly due to the end of a construction strike in Quebec.

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Indeed, the economy’s overall growth in June was also ahead of forecasts, with a 0.3 per cent gain compared to May. Fourteen out of 20 major industries expanded during the month, DePratto noted, with the goods-producing side of the economy leading the way.

TD, BMO and CIBC all noted the strong results make the chance of another interest rate increase by the Bank of Canada this fall very likely.

“We do believe that this suite of robust numbers all but locks in another rate hike this year,” Porter wrote.

With files from the Canadian Press