Canadian economy grows above expectations in Q2

Canada’s economic growth expanded in the second quarter on a sequential basis, making a fourth straight quarter of robust growth. The Canadian GDP grew 4.5 percent quarter-on-quarter, as compared with consensus expectations of a growth of 3.7 percent. Price growth came in negative, driven by a decline in the terms of trade. As such, nominal GDP, which includes these impacts, rose a more modest 2.9 percent.

The second quarter economic growth was mainly driven by consumers, as household spending grew 4.6 percent, helped by another quarter of strong spending on durable goods. Increasing household income on the back of healthy job gains aided in underpinning growth, and was enough to bring the household savings rate slightly to 4.6 percent from first quarter’s 4.3 percent.

Non-residential investment was pulled forward again, with structures and equipment investment up 7.1 percent, and intellectual property investment up 8.7 percent, noted TD Economics in a research report. Government fixed investment was slightly weak, rising just 0.5 percent.

Residential investment dropped 44.7 percent in the second quarter, given a huge drop of 24.1 percent in ownership transfer costs that reflected the easing off of resale activity in important housing markets. Net trade contributed positively to the economic growth as export growth outpaced imports.

Perhaps most encouraging was the monthly economic growth report for June where 14 out of 20 major industries grew, generating a 0.3 percent sequential gain. It was the goods-producing side of the economy that led the way again, expanding 0.5 percent on strong gains in construction. Services sector, meanwhile, grew at a slow and stable rate of 0.2 percent on comparatively widespread gains, stated TD Economics.

While it seems unlikely that another quarter of 4 percent plus growth is in store any time soon, the strong monthly data for June implies that Canada still had strong momentum heading into the summer months, with every early tracking implying that the third quarter growth could be around 2.5 percent -  a strong rate by any measure and one likely to push Canada into excess demand territory, said TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bullish at 77.196, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 99.9839. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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