Analysts on what to expect from next GDP report
Canada’s economy is expected to show further signs of weakening when Statistics Canada (StatCan) releases its Gross Domestic Product (GDP) report for the second quarter of 2024.
Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen and economist Abbey Xu have forecasted a 1.4% annualized increase in GDP, a downgrade from StatCan’s preliminary estimate of 2% provided a month ago. This would mark the seventh time in the past eight quarters that GDP growth on a per-capita basis has declined.
The anticipated slowdown is largely attributed to a mixed performance across different economic sectors. Growth in GDP during Q2 is expected to have been driven primarily by personal spending on services. Despite continued expenditure on services, there are indications that momentum waned later in the quarter. Analysts noted this shift may be linked to a decrease in spending on goods, which aligns with a 0.3% decline in retail sales volumes during the same period.
Residential investment is also projected to experience a downturn, attributed to weaker home sales. However, investment in structures is likely to have seen robust growth, supported by increased activity in the engineering and construction sectors.
The data for June has revealed a downwards trend, with output falling by 0.1%—a drop compared to the 0.1% increase reported in the advance estimate. Notably, manufacturing sale volumes decreased by 2.1%, and oil and gas drilling activities also saw a reduction. As a result, goods production is expected to have contracted by 0.5%. In contrast, the service-providing sector is projected to have remained stable, with little change from May’s figures.
Wholesale sales volumes fell by 0.9% in June, marking the second consecutive monthly decline. Although retail sales volumes saw a marginal increase of 0.1%, a 3.4% rise in home resales may offer some offset to the overall economic weakness.
The persistent softness in Canada’s economy, especially on a per-capita basis due to ongoing strong population growth, is expected to influence the Bank of Canada’s monetary policy. The central bank is anticipated to maintain its stance that the economy’s deceleration supports a downward trajectory for inflation, RBC analysts noted. As such, a further reduction of 25 basis points in the overnight rate is expected in September.
Outlook
Looking ahead, the Canadian economic calendar will be closely watched for additional signs of labour market weakening, with particular attention on June’s Survey of Employment, Payrolls, and Hours (SEPH) data. Wage growth is anticipated to slow, reflecting a decrease in job openings and a reduction in hiring demand.
In the United States, personal consumption is projected to have increased by 0.4% in July, slightly above the previous month’s 0.3% rise. Personal income is expected to have edged up by 0.1%, consistent with slower wage growth observed in recent payroll reports.
Furthermore, the ongoing shutdown of Canada’s two main railroad companies, which began on Thursday, appears likely to be resolved swiftly. The federal government is intervening to encourage negotiations and move towards binding arbitration.
Week ahead data watch:
- Canada: Quarterly GDP (Q2) expected at 1.4%, with June’s monthly GDP anticipated at -0.1%.
- US: Key data includes personal income and spending figures for July, and the second estimate of Q2 GDP.
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