Statistics Canada reports that in Q2, Canadian economic growth fell short of expectations; July estimate indicates a decline.
The second quarter saw the Canadian economy expand at an annual rate of 3.3 per cent. However, the quarterly reading falls short of expectations, and a preliminary look at July indicates a contraction.
On Wednesday morning, Statistics Canada released its most recent monthly and quarterly reports on the real gross domestic product, revealing that the economy expanded for four consecutive quarters because of higher business and household expenditure.
The government agency estimates that real GDP increased by 0.8 per cent in the second quarter after remaining steady in May and expanding by 0.1 per cent in June.
A preliminary reading for July indicates a contraction of 0.1 per cent. As a result, the second quarter’s growth fell short of the agency’s initial prediction of 4.6 per cent yearly growth.
For instance, in the first three months of this year, the economy grew at an annual pace of 3.1 per cent.
The report issued on Wednesday said that businesses increased their investments in inventory, which was the main driver of growth. Additionally, businesses boosted their expenditures on machinery, tools, and engineering structures.
Moreover, as more people returned to the workforce, household expenditure on semi-durable products grew, driven by the increase in spending on clothing and footwear.
In addition, household spending on durable goods decreased in the second quarter along with home investment.
The second quarter saw a 2 per cent increase in wages, with Ontario and Alberta contributing the most to the overall rise. According to Statistics Canada, the Atlantic provinces had over twice the national rate of wage increase during the quarter.
Although households’ disposable income increased, their savings rate fell from 9.5 per cent in the first quarter to 6.2 per cent due to inflation. Nevertheless, the savings rate, which was 2.7 per cent at the end of 2019, is still significantly higher than before the epidemic. Moreover, while the report offers the aggregate savings rate, Statistics Canada observed that savings rates tend to be higher among people in higher income brackets.
The Bank of Canada has called the Canadian economy “overheated” and has been combating excessive inflation with interest rate hikes.
According to the central bank, higher borrowing costs will help to slow economic growth and reduce inflation back to its goal level of 2 per cent.
The Bank of Canada is anticipated to announce another significant interest rate increase on September 7 due to the annual inflation rate reaching 7.6 per cent in July.
Source: Statistics Canada
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