Canadian economy contracts unexpectedly in second quarter

Data released on Friday (1/9) showed that the annual GDP growth rate for the second quarter was quite disappointing at 0.2 percent, well below the Bank of Canada's estimate of 1 .5 percent and analyst expectations of 1.2 percent.

This contraction indicates that the Canadian economy could experience a moderate recession.

Statistics Canada (Statscan) said the quarterly slowdown was largely due to lower real estate investment and fewer accumulated inventories as well as slowing international exports and household spending, as cited by Reuters.

The 0.2 month-over-month decline in June was in line with estimates, with wholesale trade the biggest drag, Statistics Canada said. The agency also noted that Canada's wildfires have had a devastating impact on many industries, including mining and quarrying and rail transportation.

Friday's GDP report is the last important national data before the BoC makes its next policy decision next week.

“It's probably a big relief for the Bank of Canada because it makes the decision in September a little easier,” said Andrew Kelvin, chief Canadian strategist at TD Securities.

“It's very easy for banks to say, 'Monetary policy is a good thing, it continues to work and that justifies postponing this month's meeting,'” he said.

Money markets sharply downgraded their rate hike forecasts next week, estimating a 9% probability after the data release, compared to a 23% probability previously.

The Canadian dollar weakened against the U.S. dollar and other major currencies after the data was released. Looking ahead, the third quarter's economic performance remains uncertain, adding to concerns about the overall health of the Canadian economy.

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Zera Carpenter

"Typical thinker. Unapologetic alcoholaholic. Internet fanatic. Pop culture advocate. Tv junkie."

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