© Reuters. FILE PHOTO: A person shops at a North Mart grocery store in Iqaluit, Nunavut, Canada July 28, 2022. REUTERS/Carlos Osorio/File Photo
By Julie Gordon
OTTAWA (Reuters) – Canada’s economic growth lagged for the second quarter and is likely to drop to negative levels in July, data showed on Wednesday, suggesting the economy is likely to cool quickly. than expected before a rate decision next week.
Statistics Canada said the Canadian economy grew at an annualized rate of 3.3% in the second quarter, lower than the Bank of Canada’s forecast of 4.0% and much lower than the forecasts of other countries. analyst is 4.4%.
Statscan said in a previous estimate, real GDP fell 0.1% in July, reversing June’s 0.1% gain. The drop in July was due to a drop in manufacturing, wholesale, retail and utility output.
“I think it all signals that the economy is weakening, perhaps faster than we expected,” said Jimmy Jean, chief economist at Desjardins Group.
The negative numbers for July suggest that third-quarter growth will be lower than the Bank of Canada’s forecast of 2.0%, economists said. However, it is unlikely to sway the central bank from its current tightening path.
“For the Bank of Canada, I don’t think that’s really changed much,” said Doug Porter, chief economist at BMO Capital Markets.
Canada’s inflation fell to 7.6% in July from a four-decade high of 8.1% in June, but still well above the central bank’s 2% target.
Money markets suggest about a 75% chance the Bank of Canada will raise interest rates by 75 basis points at its discretion next week, following a surprise 100bp increase to 2.5% in July.
Following that decision, Governor Tiff Macklem said the economy would likely have a “soft landing,” although the path to avoiding a recession is narrowing.
Second-quarter growth was driven by business investment in inventory and household consumption, with Statscan noting that Canadians are spending more on clothing and footwear as they return to the office and increased travel as COVID-19 pandemic restrictions are lifted.
But imports increased more than exports in the quarter, a moderate increase, with investment in housing also falling sharply. Canada’s property market, already red hot, has cooled amid higher interest rates.
The Canadian dollar was trading down 0.1% at 1.31 against the greenback, or 76.28 US cents after the data.