Canada's economy contracted during 2nd quarter, StatsCan says | CBC News
Canada's Economy Shrinks Surprisingly In Q2
The Canadian economy seemed to come to a halt in the second quarter due to a decline in housing investment, particularly in new construction.
On Friday, Statistics Canada announced that the economy experienced a decline of 0.2 per cent on an annualized basis during the second quarter.
Additionally, the organization adjusted its projection for an increase in reading during the initial three months of the year to a yearly rate of 2.6 percent, a decrease from the previous estimate of 3.1 percent.
During the second quarter, there was a decrease in housing investment, leading to a decline in overall performance. This decline marked the fifth consecutive quarterly decrease. Additionally, new construction experienced a significant drop of 8.2 percent, while spending on renovation also fell by 4.3 percent.
The decrease in expenditures occurred as Canadians confront the rise in borrowing expenses driven by the Bank of Canada's interest rate increases, aiming to restore inflation to its desired level of two percent.
The decline in the second quarter was also credited to reduced stockpiling, along with sluggish expansion in overseas sales and individual expenses.
Sales of goods and services saw a slight growth of 0.1 percent during the second quarter, which was a smaller rise compared to the 2.5 percent increase observed in the first quarter.
The increase in actual household expenses decelerated to 0.1 percent during the second quarter in contrast to the 1.2 percent recorded in the initial quarter.
Economist: Consumer Spending Slowdown Brings Good News
Pedro Antunes, the main economist at the Conference Board of Canada, expressed his astonishment over the unexpected halt in the economy.
The Bank of Canada had anticipated a 1.5 percent yearly GDP growth, while experts had predicted a 1.2 percent increase.
"We had anticipated the economy to exhibit slightly higher strength than its actual outcome. I believe this is actually positive news," he remarked, further noting that it seems the tightening of the central bank's monetary policy is having a dampening effect on consumer expenditure.
In my opinion, I believe it would be prudent to postpone any additional increases in rates," expressed Antunes.
The Bank of Canada is engaged in a challenging endeavor. Their objective is not solely focused on increasing interest rates. It revolves around managing people's anticipations and effectively conveying the bank's determination to take decisive action on this matter.
Construction Manager: Fewer Houses Being Built
The industries that have been most heavily impacted are retail and wholesale. These are the sectors that provide goods and services to both households and offices. Antunes notes that although the decrease in construction activity is somewhat worrisome, it is not unexpected.
"We are endeavoring to construct additional residences to accommodate the substantial increase in our population. However, this surge in numbers should not catch us by surprise as it is a natural consequence of the significant escalation in interest rates."
According to Colin Snaith, a high-ranking executive at SG Constructors, the construction industry is experiencing the impact of increased interest rates.
"We have certainly observed a decline in the quantity of residential properties being constructed, especially in the vertical buildings category," Snaith shared with CBC News during a conversation at a construction location in Toronto.
Fortunately, our field has managed to stay active despite the circumstances. This is primarily because many of the projects currently underway were initiated prior to the implementation of the new financial policies.
According to Snaith, there is a significant accumulation of construction projects that were planned to commence in the near future. However, the majority of their initiation dates have been delayed, and the pre-construction phase has been prolonged.
He stated that currently, individuals are displaying greater prudence with their money.
Often, the availability of funds is directly linked to the purchase of condominiums, and currently, there has been a decline in the demand for houses. The common consensus is that everyone is eagerly anticipating the point when interest rates finally stabilize.
GDP Remains Steady In July, Initial Estimations Indicate
In the meantime, there was a 2.4 percent increase in business investment for non-residential structures during the second quarter. This growth was primarily driven by a 3.3 percent rise in spending on engineering structures.
The general decline in the second quarter occurred due to a 0.2 per cent decrease in the economy in June.
In the month of June, there was a decrease of 0.2 per cent in the industries that provide services, while the industries that produce goods experienced a decline of 0.4 per cent.
Statistics Canada also indicated that its preliminary calculation for July indicated that the real GDP remained relatively stable throughout the month, but it emphasized that this data is subject to revisions.
The release of this report occurs prior to the upcoming interest rate decision by the Bank of Canada, scheduled for the following Wednesday.
In July, the country's central bank decided to increase its main interest rate by 0.25%, bringing it up to 5%. The bank expressed its ongoing worries that the achievement of its desired inflation rate of 2% might face obstacles in reaching its target.
