Penticton Herald

Big risks loom ing

Economic growth beats expectatio­n, but pessimism persists

- By The Canadian Press

OTTAWA — The Canadian economy beat expectatio­ns in the second quarter with its strongest quarterly stretch of growth in two years, according to a report Friday by Statistics Canada.

The details, however, were less encouragin­g, many experts said.

The economy expanded at an annualized pace of 3.7 per cent in the second quarter — thanks in large part to a 3.7 per cent rebound in goods exports and a one per cent drop in import volumes.

For many analysts, Canada’s tradedrive­n boost was likely a temporary factor, particular­ly at a time of weakening global economic conditions.

“That clearly is not sustainabl­e going forward, even without considerin­g growing external headwinds from the U.S.China trade war, Brexit uncertaint­y, headwinds from slower global growth,” said Nathan Janzen, senior economist for RBC Economics Research.

“But, I think, on balance you can still say that the economy looks like it was doing OK over the first half of the year.”

Overall, the reading showed a solid turnaround for an economy coming off its weakest back-to-back quarters of growth since 2015. It also marked Canada’s fastest pace of growth since a 4.4 per cent reading in the second quarter of 2017.

Exports of energy products grew 5.9 per cent after posting a three per cent decline in the first quarter, farm and fishing products expanded 15.2 per cent following a 8.4 per cent contractio­n and non-metallic minerals rose 19 per cent for their strongest quarter in almost three years.

The headline GDP number was also supported by the one per cent drop in import volumes, compared with a 2.1 per cent increase in the first quarter.

Forecasts had pointed to a more modest rebound after the economy experience­d a sudden decelerati­on over the winter caused in large part by a sharp decrease in oil prices.

Economists had expected growth at an annualized rate of three per cent for the second quarter, according to the financial markets data firm Refinitiv.

The Bank of Canada had projected second-quarter growth of 2.3 per cent.

Outside of Canada, there’s mounting evidence of slowing global growth — mostly a consequenc­e of the deepening U.S.-China trade war. The central bank will be forced to consider the trade-related concerns next Wednesday when it delivers its latest interest-rate announceme­nt.

“For the (Bank of Canada), the huge quarter is well above their forecast, but the risks to the outlook remain on the downside,” Benjamin Reitzes of BMO Capital Markets wrote in a report Friday.

“Given the details of the report and domestic demand falling in three of the past four quarters, the bank will likely still sound more cautious next week.”

The global environmen­t has dimmed since the central bank’s most recent public comments in early July. At the time, it underlined the resilience of the domestic economy and appeared to be in no hurry to adjust its policy, even as other central banks were poised to lower rates in response to the already darkening internatio­nal outlook.

“Definitely it won’t ease any concerns about a deteriorat­ing external growth backdrop,” Janzen said of the GDP report Friday.

He added that RBC still doesn’t expect governor Stephen Poloz to lower interest rates next week, but he noted the

For the (Bank of Canada), the huge quarter is well above their forecast, but the risks to the outlook remain on the downside. Benjamin Reitzes BMO Capital Markets

risks are tilting towards the possibilit­y of a cut in the coming months.

Stephen Brown, senior Canada economist for Capital Economics, wrote in a research note Friday that, given the downside risks, it’s maintainin­g its earlier call that Poloz will lower interest rates in October. Brown said the secondquar­ter GDP boost was supported by “temporary factors.”

The Statistics Canada report showed housing investment expanded 1.4 per cent following five-consecutiv­e quarters of declines.

Business investment declined 4.3 per cent after a posting 3.4 per cent increase in the first three months of 2019, while household spending slowed to 0.1 per cent, down from 0.7 per cent growth in the previous quarter.

Statistics Canada also revised its firstquart­er growth number to 0.5 per cent, up slightly from the initial reading of 0.4 per cent.

On a month-to-month basis, the report said the economy expanded 0.2 per cent in June — Canada’s fourth-straight month of growth. It said the Toronto Raptors’ NBA championsh­ip run that month coincided with growth for restaurant­s, bars and the category covering sporting goods, hobby, book and music stores.

 ?? The Canadian Press ?? Workers are pictured at the Vancouver shipyard in a file photo. The economy blew past projection­s by expanding at an annualized pace of 3.7 per cent in the second quarter, giving Canada its strongest three-month stretch of growth in two years.
The Canadian Press Workers are pictured at the Vancouver shipyard in a file photo. The economy blew past projection­s by expanding at an annualized pace of 3.7 per cent in the second quarter, giving Canada its strongest three-month stretch of growth in two years.

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