Canada’s economy posted a strong rebound in the second quarter, expanding at an annualized rate of 3.3%, according to data released on Friday.
The result marked a significant improvement after a weak start to the year. It also reduced pressure on the Bank of Canada to move quickly with further interest rate cuts.
Canada GDP Beats Bank of Canada Forecast
Gross domestic product grew at an annualized 3.3% pace between April and June, Statistics Canada reported.
First-quarter growth was also revised higher to 0.3%, meaning Canada avoided a technical recession. A technical recession is generally defined as two consecutive quarters of economic contraction.
The second-quarter result was broadly in line with economists’ expectations. However, it came in well above the Bank of Canada’s forecast of roughly 2.5% annualized growth.
Stronger Activity Supports Economic Recovery
The recovery was supported by improving activity across several parts of the Canadian economy.
Earlier industry data had already pointed to gains in areas such as oil and gas, construction, real estate and manufacturing.
Growth in April and May also helped the economy recover from its sluggish performance at the beginning of the year.
Statistics Canada’s June figures were broadly consistent with its earlier preliminary estimate, which suggested that real GDP by industry was on track to grow by around 0.8% during the second quarter.
Bank of Canada Faces Less Pressure to Cut Rates
The stronger growth figures could give the Bank of Canada more flexibility when deciding its next monetary policy move.
According to a Reuters poll published Friday, economists expect the central bank to keep its policy rate at 2.25% for another year.
However, policymakers are still monitoring risks linked to Canada’s trade relationship with the United States, along with signs of weakness in domestic demand.
Canadian Dollar Gets Support From Stronger GDP
The stronger GDP report also provides a positive short-term signal for the Canadian dollar.
Better-than-expected economic growth reduces the immediate case for additional monetary easing, which can support the currency.
The Canadian dollar was recently trading near C$1.385 per US dollar. It had already gained ground on Thursday as oil prices increased and Canada reported an unexpected current-account surplus.
Bank of Canada Still Faces Key Risks
Despite the strong second-quarter headline figure, the report may not be enough to significantly change the Bank of Canada’s policy outlook.
Officials are likely to focus on whether the economic recovery can continue while trade uncertainty remains elevated.
Inflation, domestic demand and developments in US-Canada trade relations will also remain important factors ahead of the Bank of Canada’s next interest rate decision on September 2.
