Canadian economic growth accelerates in Q2 2018, normal pace of growth likely to prevail

Canadian economy expanded strongly in the second quarter. On a sequential basis, the GDP grew 2.9 percent in the June quarter, accelerating from 1.4 percent recorded at the start of the year. However, it was slightly below consensus expectations of 3 percent growth. Taking modes price gains into account, nominal GDP rose 5.1 percent in the second quarter.

The headline GDP growth was mainly driven by exports, which grew 12.3 percent. Energy exports and consumer goods also added to the growth, rising 24.2 percent and 27.6 percent, respectively. The import growth accelerated to 6.5 percent. The headline growth was also boosted by consumer spending. Household consumption rose 2.6 percent, while service spending and expenditures on durable goods rose 3.2 percent and 2.1 percent, respectively.

Meanwhile, business investment was the dark spot of the report. Investment in non-residential structures were up modestly by 2.2 percent, the slowest rate of growth in the last six quarters. Machinery and equipment spending also rose just modestly by 1.4 percent as companies pulled back their motor vehicle spending after a strong start to the year.

Interestingly, residential structures investment rose 1.1 percent as strong renovation activity offset falls in new construction and ownership transfer costs. Real growth might have accelerated, but income growth slowed modestly. Compensation of employees rose 2.9 percent, the slowest since mid-2016. The household saving rate dropped to 3.4 percent from a revised rate of 3.9 percent in the first quarter.

On a monthly basis, the monthly GDP came in flat in June with 12 out of 20 major industries expanding output. This was mainly because of a disruption in the oil and gas sector, resulting in lower output of goods. On the contrary, output of services rose 0.1 percent.

Looking ahead, a more ‘normal’ rate of growth is expected to prevail, noted TD Economics in a research report. Housing activity appears to have bottomed, and so residential investment is likely to continue making a positive contribution, offset by disruptions in the energy sector.

“Another hike is coming, but communication opportunities and the timing of the Business Outlook Survey both make the Bank of Canada's October policy meeting the most likely timing for the next move”, added TD Economics.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -0.71739, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 64.9802. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex