The economy surged past second-quarter expectations with growth at an annual rate of 4.5%, giving the country its best start to a calendar year since 2002, Statistics Canada said Thursday.
Household spending and exports, particularly in the form of energy products, drove the increase in real gross domestic product, the agency said.
In an economic news report, National Bank senior economist Krishen Rangasamy says the economy grew a stunning 4% annualized in the first half of the year. “One has to go back to the second half of 2011 to see such a strong semester of growth,” he writes.
There’s also more growth potential, he adds, with the savings rate having “jumped three ticks to 4.6%.” He finds, “The 6.6% annualized increase in real disposable incomes, the biggest increase in seven years, explains the consumption and savings surge.”
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Based on Thursday’s data, Rangasamy says, National Bank has upgraded its Canadian GDP growth forecast for 2017 to 3%.
The sturdy GDP data provides the latest evidence the 2017 momentum has continued to build and arrives with the Bank of Canada widely expected to once again hike its benchmark rate in the coming weeks.
In July, the central bank cited the strengthening economy when raised its rate to 0.75% from 0.5%; that was its first rate hike in seven years. The BoC’s final three rate announcements are scheduled for September 6, October 25 and December 6.
An economic flash from CIBC Economics says a September hike may be in the cards. “The market seems convinced that the Bank of Canada will wait until October, but the September meeting is now more likely,” says CIBC. “Still, after a hike, with the [loonie] at lofty levels, the Bank will sit back and wait for the Fed to resume its own rate hike path, rather than fly solo and allow the currency to overshoot.”
In terms of Q3 growth, CIBC still calls for expansion of closer to 2%, “with export and inventories among the categories likely to weigh on that quarter’s pace, and housing turnover remaining slower than it had been earlier in this cycle.” Yet, the bank’s bullish for the loonie and bearish for fixed income, and supportive of equities linked to domestic demand.
Read: Why this economist predicts slower Canadian GDP after Q2
GDP details
Thursday’s GDP data shows exports expanded 2.3% from April to June, up from 0.4% in the first three months of the year. Exports in goods and services rose 2.3%, while the export of energy products increased 9.2%.
Households spent 1.9% more on goods in the second quarter — the strongest gain since 2007.
Overall, the quarterly increase came even though housing investments contracted 1.2% during a period that saw the introduction of a new Ontario tax on foreign buyers in April. In comparison, residential real estate expanded 2.9% in the first quarter.
A consensus of economists had predicted Canada to deliver a second-straight growth reading of 3.7%, according to Thomson Reuters. The Bank of Canada had predicted second-quarter real GDP to expand by 3% in its latest forecast, released in July.
Combined with the 3.7% expansion over the first three months of 2017, Statistics Canada said the country saw its strongest six-month start to a calendar year in 15 years. The data also shows the last time quarterly growth climbed as high as 4.5% was in the third quarter of 2011 when it hit 5.7%.
The second-quarter acceleration was fuelled by an eighth-consecutive monthly increase in June that included a two% expansion in the construction sector — its largest gain in four years. The report said 14 of 20 industrial sectors saw growth in June.
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