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(Bloomberg) – The Canadian economy accelerated in the current quarter as the country took advantage of rising commodity costs and was boosted by the lifting of covid lockdowns, symptoms are emerging, momentum is weakening.
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Gross domestic product grew at an annualized rate of 3. 3 per cent after emerging 3. 1 per cent in the first 3 months of the year, Statistics Canada reported on Wednesday. expected an annualized expansion of 4. 4% in the current quarter.
The numbers paint a picture of a booming economy for much of the first part of 2022, even as the U. S. The U. S. and other countries stumbled. But it is now entering an era of much slower expansion in the face of decades-long peak inflation and emerging interest. Rates
The most recent monthly readings show the economy topped 0. 1% in July, following a slight 0. 1% gain in June and a solid expansion in May, reinforcing evidence of a slowdown in momentum.
The Canadian dollar fell, falling as low as C$1,313 per U. S. dollar after publication. The previous Wednesday, it had traded up to $1,306 CAD. The yield on benchmark two-year bonds fell four bases from session highs to 3. 632%.
Economists expect Canada’s growth rate to fall below the annualized 1. 5 percent in the current part of this year and through 2023, and some even expect a imaginable recession amid one of the most competitive bull cycles ever achieved by the Bank. of Canada.
The Bank of Canada had forecast a four-cent expansion in the current quarter. The weaker-than-expected reading reflects a strong expansion in imports. The consistent percentage of household and commercial expenditure that is used to purchase goods and from other countries is not accounted for in domestic production.
Gov. Tiff Macklem and his officials have already raised the benchmark overnight interest rate through 2. 25 percentage issues since March and it is expected to continue to rise for the rest of the year. Investors are almost entirely expecting 75 fundamental issues to accumulate in the Bank of Canada’s upcoming Policy Resolution on September 7.
“While policymakers are very likely to raise interest rates again at next week’s assembly to combat strong inflationary pressures, the slowdown in the economy over the summer reinforces our view that the Bank will pause after that to rethink how expansion and inflation are responding to this situation. “higher interest rate environment,” Andrew Grantham, an economist at the Canadian Imperial Bank of Commerce, said in a report for investors.
House expenses
Canadians also face constant costs for almost everything, with wage gains keeping pace with inflation, which has hovered around 8 per cent in recent months.
It is true that emerging costs did not prevent families from accelerating their spending in the first part of the year. Household intake increased by an annualized 9. 7% in the current quarter.
Canada’s resource-rich economy in the early part of the year also benefited from rising commodity prices, boosting earnings and demand.
Nominal output expansion increased to 4. 2% on a non-annualized basis due to higher costs of locally produced goods and the largest accumulation outside the pandemic recovery since 1981. Workers’ reimbursement increased by 2. 0%.
Companies took advantage of strong demand and heavy commodity costs to accumulate inventories totaling C$47 billion ($36 billion). Inventory accumulation was the main contributor to growth in the current quarter.
Business investment in structures and machinery and appliances also registered a highly annualized rate of 14%.
The strong turnout in the early part of the year helped Canada enjoy a rare economic decoupling from the United States. Over the past six months, the expansion of the U. S. UU. se has reversed with consecutive quarterly contractions, even as Canada has recorded one of the six most powerful. -periods of months of expansion in decades.
But this outperformance, at least for the United States, represents a component of recovery. Canada has suffered stricter lockdowns than the United States, where the full recovery of GDP has been faster.
Economists expect the Canadian and U. S. economies to converge in the current part of this year and grow at about the same rate over the next two years.
In Canada, the effect of higher interest rates is already being felt, according to the data. Residential investment fell at an annualized rate of 28% in the current quarter, one of the biggest declines on record. The biggest quarterly drop in housing investment occurred at the height of the pandemic.
Meanwhile, most of the gains from household intake were due to durable and semi-durable goods. Spending on interest-rate-sensitive durable goods declined.
Meanwhile, strong customer demand in the first part of the year translates entirely into increased economic activity. Much of the spending goes abroad, with emerging imports of 31% annualized in the current quarter.
While exports also increased by 11% year-on-year, shipments did not keep pace with imports. Overall, the industrial sector acted as a drag on expansion, reducing expansion by 5. 2 percentage points annualized.
(Updates with the market and the reaction of economists. A previous edition corrected the magnitude and magnitude of the decline in residential investment in the paragraph. )
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