OTTAWA – The Canadian economy surged in the second quarter, surpassing already elevated expectations, and recorded its best 12-month run in over a decade.
Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, rose at a 4.5% annualized rate in the second quarter to 1.85 trillion Canadian dollars ($1.47 trillion), Statistics Canada said Thursday.
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This shattered market expectations for a 3.7% increase, according to economists at Royal Bank of Canada. Thursday's figure, coming on the heels of a 3.7% advance in the January-to-March period, makes Canada the hottest performer so far in 2017 among Group of Seven countries.
Exports and household spending were the main contributors toward the performance. Business investment rose, although at a slower pace, and government spending also helped lift results.
The data agency said cumulative growth in the first two quarters of 2017 marked the strongest start of a calendar year since 2002. The second-quarter data marks the best 12-month performance -- 3.7% growth -- for the Canadian economy since 2006, or near the height of the bull run in commodity prices.
"This is a spectacular report," said Jimmy Jean, economist at Desjardins Capital Markets in Montreal. "We are getting contributions from nearly all categories."
In comparison, the U.S. economy grew 3% in the second quarter, its most robust pace in over two years, supported by consumer spending and a pickup in business investment.
The second-quarter result cements the likelihood of at least one more rate increase from the Bank of Canada in 2017. Canada's central bank in July raised its benchmark interest rate by a quarter-percentage point to 0.75%, the first increase since 2010, on the view the economy was approaching full capacity as growth was broadening. The Bank of Canada delivers its next rate decision this coming Wednesday, and before the GDP report most economists believed the central bank would stand pat and instead opt to increase its policy rate at its scheduled October meeting.
In its most recent quarterly forecast, the Bank of Canada projected second-quarter annualized growth of 3%.
Mr. Jean said the second-quarter performance signals that slack in the economy -- or unused labor and production capacity -- is now largely absorbed. Still, he expects the Bank of Canada to move gradually on rate increases, given the record consumer debt loads in the country.
Thursday's data showed GDP in June grew at a faster-than-expected 0.3% from the previous month, versus the consensus 0.1% call, as construction rebounded after workers in Quebec returned to work following a labor dispute.
The International Monetary Fund has forecast that Canada would emerge as the fastest-growing G-7 economy in 2017, buoyed by resilient domestic demand. The recent 12-month run reflects year-ago effects, as the Canadian economy contracted in the second quarter of last year following wildfires in western Canada that forced energy producers to curtail or shut down production. "But it also reflects the fact that a major headwind -- the oil-price shock adjustment -- has faded, leaving above-potential growth in other sectors and regions of the country to fully shine through," said Robert Kavcic, economist at BMO Capital Markets.
Canada and the other major global economies are growing in sync, bolstered by accommodative monetary policy and the gradual fading of crises in the U.S. and Europe. This has given central banks, such as Canada's, confidence to begin pulling back extraordinary levels of stimulus.
To be sure, the pace of growth is expected to tail off, starting in the current quarter. Housing activity, which has been a significant growth driver, weakened in the second quarter, as a result of measures from local authorities to cool elevated house-price gains. Statistics Canada said investment in residential structures fell 1.2% in the April-to-June period, after a 2.9% gain in the previous quarter.
Some forward-looking indicators also point to a slowdown. National Bank Financial's gauge of economic momentum indicate growth slowed in July after robust advances in June and May. And the Canadian Federation of Independent Business, a small-business lobby, said its confidence index dropped for a third straight month in August. "The business mood is locking into [a] downshift," the federation's chief economist, Ted Mallett, said Thursday.
Write to Paul Vieira at email@example.com
(END) Dow Jones Newswires
August 31, 2017 09:43 ET (13:43 GMT)
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