By Promit Mukherjee
OTTAWA, Aug 28 (Reuters) – Canada’s economy rebounded sharply in the second quarter after six months of virtually no growth, aided by a strong jump in exports and solid domestic demand, data showed on Friday.
The economy grew at an annualized rate of 3.3% in the second quarter, after a revised 0.3% increase in the first quarter, Statistics Canada said.
The upward revision to first-quarter growth means Canada was not in a technical recession, usually defined as two straight quarters of contraction.
Healthy domestic demand, led by consumer spending and business investments, signals the economy is slowly brushing off the impacts of more than 18 months of U.S. import tariffs that upended North American supply chains and increased costs.
The Canadian dollar slightly weakened after the GDP data with loonie trading down 0.01% to C$1.3856 against the U.S. dollar, or 72.17 U.S. cents.
Money markets were pricing in no change in interest rates next week..
Yields on 2-year government bonds firmed after the data and were up 1.3 basis points to 2.601%.
FRESH TARIFF DISPUTE
A strong domestic consumption and expenditure pattern puts Canada on a firm footing to withstand a new 50% U.S. import tariff that President Donald Trump imposed this week. Canada retaliated with its own counter-measures on Canadian imports from the U.S.
On a quarterly basis, GDP grew at 0.8% for the period ended June, from an upwardly revised 0.1% in the previous quarter.
Second-quarter annualized growth was higher than the Bank of Canada’s July forecast of 2.5% growth.
Higher exports were one of the main contributing factors for the second-quarter growth with outbound shipments growing 3.6%, the biggest increase in over three years, StatsCan said.
Final domestic demand, the sum total of all consumption and capital spending and a crucial metric to assess domestic health, rebounded to 1% in the second quarter, from a minor contraction in the first quarter.
Domestic demand has been muted for several quarters as consumers and businesses remain cautious while Canada navigates its trade war with the U.S.
Investors and economists also closely watch the GDP numbers to judge whether the economy is being held up by important levers such as consumer spending and private investment or being propped up by government support.
The household final consumption expenditure, the main indicator of consumer spending, rose 0.8%, its highest level in three quarters, highlighting the strong household spending trend.
Business investment, or business gross fixed capital formation, sprang to a solid 2.3% growth in the second quarter from a contraction of 1.3%, the first time in the last year and a half that business investment has expanded.
That growth was led by investment in both residential and non-residential structures, machinery and equipment, StatsCan said.
However, the general gross fixed capital formation, essentially government expenditure for creating assets, continued to decline with a second-quarter contraction of 2.9%, after shrinking 2.6% in the previous quarter.
On a month-to-month basis, the GDP for June grew 0.3% against a forecast of 0.2% and an advance indicator showed that the economy was largely flat in July, the statistics agency said.
(Reporting by Promit Mukherjee; Editing by Dale Smith and Elaine Hardcastle)
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