Canadian economy keeps slowing down amid growing interest rates
In July, Canada’s economic activity was slightly stronger than expected. However, it was still weak during the summer pointing to the fact that growth is slowing significantly.
According to Statistics Canada, gross domestic product was up by 0.1% in July, exceeding the forecasts of a 0.1% decline. Preliminary data says GDP didn’t show any changes in August.
Nevertheless, the results remain consistent with an economy slowing down from a strong beginning of the year, as a reopening boom is fading. Since April, we’ve seen an average monthly growth of only 0.1%.
The weak numbers show how much Canada’s resource-depending economy (which has taken advantage of the recent hike in energy prices) is still vulnerable to global economic challenges and higher borrowing costs that threaten to restrain growth in most major advanced economies.
Although the slowdown will not stop the BoC from rate increases, policymakers will be watching closely the rate of weakness in the economy to see how far they can go to return inflation to its target of 2%.
As you know, governor Tiff Macklem has already raised the BoC’s key lending rate by 3% since March, and more increases are expected this year. Markets predict a 0.50% rate hike at the Bank’s next meeting on October 26.
Canada’s economy reported 3.1% growth in the first quarter, followed by 3.3% seen in the second quarter. Economists expect the growth to go down to 1% on a year-over-year basis in both Q3 and Q4.
The manufacturing and construction segments contracted in July, wholesale trade also slowed down, retail activity fell, and higher inflation combined with growing interest rates kept slowing the housing market.
In another report, Statistics Canada says job vacancies were down in July by 56,400 (5.5%), marking another sign of an economic slowdown. At the same time, total vacancies are still high (almost 1 million).