Moneycontrol PRO

Canada’s economy is losing momentum after strong start to 2022

Canada’s economic expansion showed signs of moderation in May and June, pulling back from a strong start to the year in the face of high inflation and rising interest rates.

July 29, 2022 / 08:32 PM IST
(Representative Image)

(Representative Image)


Canada’s economic expansion showed signs of moderation in May and June, pulling back from a strong start to the year in the face of high inflation and rising interest rates.

Output in June was on track for a small increase of 0.1% after stalling in May, Statistics Canada said on Friday. That follows three months of strong growth between February and April that helped fuel a robust expansion in the second quarter, which the agency estimated at about 4.6% annualized.

The results show a picture of an economy that was unscathed from the global slowdown in the first part of the year but may be entering a period of much slower growth.

The Bank of Canada has raised its benchmark policy rate by more than two percentage points since March to slow four-decade high inflation, and is expected to continue hiking by at least another half-percentage point at its next policy decision in September.

The second-quarter growth number was even stronger than the 4% annualized pace estimated by the central bank earlier this month, and represents an acceleration from growth of 3.1% in the first quarter.

Close

“The Bank of Canada is still on course to deliver another non-standard rate hike at its next meeting,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.

The Canadian dollar was little changed on the report, down 0.2% to C$1.2838 per U.S. dollar at 8:51 a.m. in Toronto trading. Yields on Canadian government two-year bonds rose about 4 basis points to 2.97%.

While the global economy has been hit hard by rising energy costs, Canada’s resource-based economy has been benefiting from elevated oil, grain and gas prices. The strong first half pace also reflects reopening effects earlier this year, after strict Covid-related lockdowns last winter.

Economists anticipate Canada’s growth rate will slow to below 2% annualized in the second half of this year and into 2023.

In May, growth in services-producing industries was offset by declines in goods-producing sectors, particularly construction and manufacturing, the statistics agency said. The construction sector was hit by widespread strikes during the month.

Advance information for June shows construction and manufacturing rebounded.

A median estimate in a Bloomberg survey of economists expected a drop of 0.2% in May.
Bloomberg
first published: Jul 29, 2022 08:32 pm
Sections
ISO 27001 - BSI Assurance Mark