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Canadian economy accelerates at sharpest rate in more than 2 years

H.S. Borji
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Canadian economy accelerates at sharpest rate in more than 2 years

The Canadian economy rebounded in the second quarter, accelerating at the fastest pace in more than two years, as consumer spending continued to be a main catalyst in the nation’s recovery.

Canada’s real gross domestic product rose 0.8 percent in the second quarter, following a 0.2 percent increase in the January-March period, Statistics Canada reported today in Ottawa. That was the largest gain since the third quarter of 2011.

GDP rose 0.3 percent in June, following a 0.5 percent advance the previous month.

In annualized terms, the Canadian economy accelerated 3.1 percent in the second quarter, following a downwardly revised gain of 0.9 percent in the first three months of the year. Economists forecast annualized GDP to rise 2.7 percent.

The gains were driven by stronger activity in virtually every sector of the economy. Household spending continued to be Canada’s main growth engine in the April-June period. Household final consumption expenditure increased 0.9 percent, the strongest gain since the second quarter of 2013. Consumers spending on goods increased 1.2 percent, led by a 3.5 percent advance in durable goods and a 0.7 percent increase in services.

The service economy accelerated 0.8 percent in the April-June period, led by gains in both wholesale and retail trade.

Output in the goods-producing industries, which comprise manufacturing, natural resources, utilities and others, increased 0.6 percent.

Today’s figures suggest the world’s eleventh largest economy recovered from the first quarter letdown that was due largely to severe weather. Household consumption, business spending and government spending all took a major hit in the January-March period. As a result, the Bank of Canada downgraded its 2014 growth outlook to 2.2 percent from 2.3 percent. According to BOC Governor Stephen Poloz, the economy is expected to remain below capacity until the middle of 2016.

The United States helped steer the Canadian economy in the right direction in the second quarter. US GDP accelerated at an annual rate of 4.2 percent between April and June, which resulted in higher demand for Canadian goods. Exports, which the BOC is relying on to boost Canada’s recovery, increased 4.2 percent in the second quarter, following a 0.2 percent drop in the January-March period.

The US is by far Canada’s largest trade partner, and accounts for approximately three-quarters of Canada’s export market.

The stronger than forecast rebound in the second quarter likely won’t be enough to sway the BOC’s opinion about Canada’s growth prospects. The central bank is scheduled to meet next week to discuss monetary policy and set the interest rate. The September meetings will mark the fourth consecutive year the BOC has held interest rates at 1 percent. Persistent slack in the labour market gives central bankers plenty of scope to keep rates accommodative for the time being.

Canada’s economy added 42,000 jobs in July, although all of the gains were in part-time work.

Compared to the previous 12 months, the economy added a total of 157,000 jobs, the strong majority of which were part-time positions.

The unemployment rate nudged down to 7 percent in July.

Statistics Canada will release August employment numbers next Friday.

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