MNI DATA ANALYSIS: Canada 2Q GDP Adds Moderate Upside Risk

By Yali N'Diaye

     OTTAWA (MNI) - Canada's GDP expanded at an annualized pace of 2.9% in the

second quarter, slightly more than the Bank of Canada's 2.8% projection, adding

upside risk to the domestic growth outlook.

     The gain was reinforced by an upward revision to the first quarter growth

estimate to 1.4% from the initially reported 1.3% gain that was factored into

the central bank's projections.

     --STRONG EXPORTS

     The data published Friday by Statistics Canada supported the BOC's export

scenario. 

     "Exports are being buoyed by strong global demand and higher commodity

prices," the BOC said in its July policy statement.

     It attributed export strength in the first half of this year to oil,

following temporary pipeline shutdowns in late 2017.

     Friday's report did confirm that oil boosted exports in the second quarter,

while services exports contracted (-0.2%) for the first time since the fourth

quarter 2015.

     Nonetheless, exports excluding energy were still up 2.2% after decreasing

0.6% in the first quarter.

     The strong export performance, combined with the upward revision to U.S.

GDP growth in the second quarter, adds upside risk to the BOC's growth scenario.

In fact, stronger-than-expected U.S. GDP growth was among the upside risks cited

by the central bank itself in the July Monetary Policy Report.

     --HOUSEHOLD SPENDING PICKS UP

     Household spending growth also accelerated in the second quarter, with a

0.6% pace that was twice as fast as the 0.3% recorded in the first quarter.

     The rebound came after a slowing trend that had dominated since the

beginning of last year. It remains to be seen whether consumers will continue to

spend at a higher rate, which would also add to the upside risk to the inflation

outlook and challenge the BOC's growth rotation scenario.

     --BUSINESS INVESTMENT SLOWDOWN

     That being said, the upside risk to the inflation outlook stemming from GDP

growth is only moderate.

     In particular, Canadian business investment slowed down further in the

second quarter, posting a 0.4% gain, the smallest since the fourth quarter 2016.

     --SLOWING MOMENTUM

     In addition, monthly data on GDP by industry published Friday showed that

activity was losing momentum going into the third quarter.

     June GDP was flat after expanding 0.5% in May. Output in goods-producing

industries contracted 0.2%, with declines across the board, except in

manufacturing (+0.3%).

     Services GDP edged up 0.1% in June despite lower wholesale and retail

sales, after a 0.5% gain in May.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]