MNI: Canada Flash Q2 GDP Shows Fade to 1% Annualized Pace

Canada's gross domestic product grew at a 1% annualized pace in the second quarter, the federal statistics office said Friday, slower than the first-quarter pace of 3.1% and the central bank's estimate of 1.5% for the April-to-June period.

Statistics Canada's flash estimate is based on monthly figures showing output declined 0.2% in June, following expansions of 0.3% in May and 0.1% in April. While the May increase lagged the economist consensus for a 0.4% rise, April GDP was revised up a notch. 

Bank of Canada Governor Tiff Macklem has said he doesn't want to overdo interest-rate hikes but he's prepared to act for an 11th time if needed to get inflation back in line. Continued economic growth has defied forecasters for more than a year now, who have said weak global demand and the central bank's rate hikes from a record low 0.25% to the highest since 2001 at 5% were bound to stall the economy. Most economists were already predicting the Bank will hold interest rates at its next meeting in September. 

The GDP decline in June was led by wholesaling and manufacturing, Statistics Canada said, while there were some offsetting gains in oil and gas and real estate. The contraction is the first since December's 0.1% decrease.  

Statistics Canada's official monthly GDP figure for May showed growth led by a 0.6% gain in public sector output, rebounding from a 0.3% decline in April as most striking federal government workers returned to their jobs. On the downside, forest fires in Alberta shut facilities and triggered a 6.6% decline in conventional oil and gas production, while maintenance work lowered heavy crude production 1.6%. Housing continued to show strength with activity by real estate agents up 7.6%, the fourth straight increase. 

The Bank of Canada's last rate decision identified a host of upside risks to inflation, which it sees remaining above 2% until mid-2025, suggesting even slower growth may not be a cure-all. The job market is generating strong wage gains even as unemployment drifts up from record lows set over the last year. Canada is also facing renewed supply bottlenecks including forest fires, a strike at Canada's largest port in Vancouver and flooding that cut a major rail line in Nova Scotia. Officials have also cited elevated core inflation and pointed to the breadth of price gains as another concern.