Canada’s economy showed resilience against the threat of a global recession with a flash estimate showing a 1.1% quarter-over-quarter GDP increase between April and June.
Statistics Canada on Friday also reported a flash estimate showing June GDP climbed 0.1% on construction, manufacturing and hospitality services. Its official estimates showed output was little changed in May, beating the market consensus for a decline of 0.2%, and GDP rose 0.3% in April.
While automakers struggling with a global microchip shortage saw output tumble 21% in May, easing Covid restrictions saw air transportation increase 14% and urban transit by 8.9%. Construction fell 1.6% as workers in the province on Ontario were on strike, while maintenance at oil sands facilities curbed that industry's output by 3.4%.
Canada may have a stronger case than the U.S. for continued aggressive rate hikes with the central bank and investors both seeing little prospect of a recession this year even with Governor Tiff Macklem already setting the G7’s highest policy interest rate of 2.5%. Inflation is also threatening to exceed the Bank’s 2% target beyond its two-year range for restoring normalcy.
The Bank will see the official Q2 and June GDP figures next month, ahead of the next rate decision on Sept. 7. At the moment a bare majority of economists see a 75bp hike in September, stepping back from the July 13 move of 100bps.
The flash Q2 estimate is a bit stronger than the Bank’s July projection for 4% annualized growth, and around the market consensus for something more like 4.5%. Other figures also suggest a tight economy: inflation has reached the fastest since January 1983 at 8.1% while unemployment is the lowest in modern records at 4.9%.