Two significant tailwinds are going to get weaker, according to one analysis
The Canadian economy performed well in the second quarter, with GDP growing by 4.5%. That brings the cumulative total since the start of the year up to 4.1% on an annualized basis, which is the best start to the year since 2002. However, experts are expecting things to slow down.
“[E]conomic growth should slow in the coming quarters, converging on a pace that is more sustainable over the medium range,” said a new economic outlook from Desjardins.
The note reported strong advances from consumer spending, driven by the solid performance of the labour market, rising primary income among households, and fairly high consumer confidence. Government expenditures climbed, albeit at a slower pace than expected considering the federal government’s ongoing recovery plan.
The only dark spot, according to the report, was the 4.7% retreat in residential investment, largely due to restrictive measures on the Toronto market that were implemented by Ontario. “If we also take into account the key interest rate hikes that began in July, our scenario assumes that the downside adjustment in the housing market will continue in the quarters ahead.”
Interest rates are also expected to weigh on consumers, specifically their appetite for durable goods, which has been a major growth driver since the beginning of the year.
From a sectoral perspective, most industries reported growth in the second quarter. The mining, oil, and natural gas industry saw an annualized increase of 17.3%, accounting for nearly 30% of real GDP growth for the period. But while the industry is well on its way to recovering and is starting to align with the broader economy in terms of output, Desjardins researchers are expecting its growth to slow down. There are no major oil price increases projected for the next few quarters, which will put a crimp in the development of new drilling facilities.
“In such conditions, real GDP growth should slow in the quarters ahead, converging towards 2.0%,” the note said. “In the short term, sustained real GDP growth in recent months is yielding a fairly hefty carryover for Q3 2017, which could end with a gain of about 3.0%.”
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“[E]conomic growth should slow in the coming quarters, converging on a pace that is more sustainable over the medium range,” said a new economic outlook from Desjardins.
The note reported strong advances from consumer spending, driven by the solid performance of the labour market, rising primary income among households, and fairly high consumer confidence. Government expenditures climbed, albeit at a slower pace than expected considering the federal government’s ongoing recovery plan.
The only dark spot, according to the report, was the 4.7% retreat in residential investment, largely due to restrictive measures on the Toronto market that were implemented by Ontario. “If we also take into account the key interest rate hikes that began in July, our scenario assumes that the downside adjustment in the housing market will continue in the quarters ahead.”
Interest rates are also expected to weigh on consumers, specifically their appetite for durable goods, which has been a major growth driver since the beginning of the year.
From a sectoral perspective, most industries reported growth in the second quarter. The mining, oil, and natural gas industry saw an annualized increase of 17.3%, accounting for nearly 30% of real GDP growth for the period. But while the industry is well on its way to recovering and is starting to align with the broader economy in terms of output, Desjardins researchers are expecting its growth to slow down. There are no major oil price increases projected for the next few quarters, which will put a crimp in the development of new drilling facilities.
“In such conditions, real GDP growth should slow in the quarters ahead, converging towards 2.0%,” the note said. “In the short term, sustained real GDP growth in recent months is yielding a fairly hefty carryover for Q3 2017, which could end with a gain of about 3.0%.”
For more of Wealth Professional's latest industry news, click here.
Related stories:
Canadian investors blasé about economy
Consumers and businesses building Canadian confidence: RBC
