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MNI (Ottawa)

Canada's economy unexpectedly stumbled in the second quarter and a flash estimate for July showed a similar loss to start the third quarter, undercutting the central bank's forecast for a powerful rebound.

Gross domestic product fell at a 1.1% annualized pace between April and June, while economists predicted a gain of 2.5%. While Statistics Canada's monthly report showed a 0.7% monthly gain for June that met market expectations, the flash July estimate showed a 0.4% decline. The agency also further marked down the GDP declines for April and May, respectively to 0.9% and 0.5% from the initial 0.5% and 0.3%.

Economists may reduce earlier estimates for Q3 growth around 6% reflecting the end of major restrictions on dining out and other social gatherings, and the BOC may revise its estimate of a 7.3% expansion. The BOC will plug the figures into deliberations before its Sept. 8 rate decision, where it's expected to maintain QE worth CAD2 billion a week and a record low 0.25% policy rate as it anticipates a strong second half led by consumer spending.

Economic weakness also has implications for Liberal Prime Minister Justin Trudeau ahead of a Sept. 20 election where polls show he's now about tied with Conservative challenger Erin O'Toole in popular support in part because of complaints about the economy, including high inflation.

Exports were the major source of second-quarter weakness, while home resales plunged from record highs and consumer spending that had powered the economy was flat. Government spending and business inventories were the only major gainers, further evidence of a quarter without much private spending.

The global microchip shortage hit business and consumer purchases of vehicles and helped feed a 15% annualized slump in Canada's exports, StatsCan said. Still, the household savings rate of 14.2% remained elevated and suggested untapped future demand. The monthly figures suggest output remains 1.5% below February 2020's pre-pandemic level.

Source: Statistics Canada

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