Canadian economy grows at 2.1% annual pace in Q2, per-capita household spending drops

The economy grew at an annualized rate of 2.1 per cent in the second quarter — beating the Bank of Canada’s forecast — but continued to shrink on a per-person basis.

Statistics Canada’s real gross domestic product report on Friday said growth was supported by higher government spending, business investment in engineering structures as well as machinery and equipment and household spending on services.

Meanwhile, the economy posted declines in exports, residential construction and household spending on goods.

Economic growth halted toward the end of the quarter as the real gross domestic product was essentially unchanged for June. A preliminary estimate suggested the economy remained flat in July as well.

The data comes ahead of the Bank of Canada’s interest rate decision on Wednesday.

“Growth in the Canadian economy was modestly better than expected in Q2, but weak momentum heading into the third quarter gives ample reason for the BoC to continue cutting interest rates,” said CIBC senior economist Andrew Grantham in a client note.

Economists are widely expecting the central bank to lower its key policy rate by a quarter of a percentage point, which would bring it to 4.25 per cent.

Bank of Canada governor Tiff Macklem said at the last interest rate announcement that the central bank was cutting interest rates in part to help the economy bounce back.

While high interest rates have not pushed the economy into a recession, it continues to lag strong population growth.

On a per person basis, the economy shrank for a fifth consecutive quarter.

The labour market is also showing signs of economic weakness as the unemployment rate keeps trending higher.

Canada’s unemployment rate was 6.4 per cent in July, with youth and recent immigrants disproportionately affected by the slowing job market.

High interest rates have also put a damper on household spending. With population growth outpacing consumption, per-capita household spending fell by 0.4 per cent in the second quarter.

This report by The Canadian Press was first published Aug. 30, 2024.