By Gordon Isfeld
OTTAWA (MaceNews) – The Canadian economy exceeded analysts’ expectations for a strong second-quarter gain, following weaker — but still positive — output growth in the first three months of 2019, but the stage remains set for a possible interest rate cut if threats to global output persist.
Canada’s gross domestic product grew by 0.9 per cent overall in the second quarter, Statistics Canada reported on Friday, as exports led growth with a 3.2-per-cent gain. On an annualized basis, Canada’s overall output expanded by 3.7 per cent in the second quarter, beating economists expectations of a three-per-cent gain.
“GDP growth was moderated by a 1.6-per-cent decline in business investment,” Statistics Canada noted, with weaker spending on machinery and equipment. At the same time, household spending also slowed in the second quarter to 0.1 per cent — down considerably from a 0.7- per-cent rise in the first three months of 2019, as purchases of vehicles declined by 1.4 per cent, the federal data agency reported.
The Bank of Canada has kept its trendsetting lending level at 1.75 per cent since Oct. 24, 2018, although storm clouds have been gathering since trade concerns intensified under U.S. President Donald Trump.
“There will be concern about how long that can last given escalated U.S.-China trade tensions, Brexit uncertainty and slower global growth,” said Nathan Janzen, senior economist at Royal Bank of Canada.
The current outlook from the Canada’s central bank is for 1.3 per cent economic growth in 2019, followed by a 1.9-per-cent increase in 2020 and a two-per-cent rise in 2021.
The next policy rate decision will be on Sept. 4, with two more opportunities scheduled to refine lending levels in October and December. However, most private-sector economists are not anticipating the BoC to raise borrowing costs until 2020.
“Expect more subdued second-half growth, as trade uncertainty keeps a lid on investment and debt burdens continue to restrain consumer spending,” said Benjamin Reitzes, at BMO Capital Markets.
“For the BoC, the huge quarter is well above their forecast, but the risks to the outlook remain on the downside. Given the details of the report and domestic demand falling in three of the past four quarter, the bank will likely still sound more cautious next week.”