No summertime blues for the Canadian economy

1.
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Canadian Real GDP Report – May: No summertime blues for the Canadian economy
Real GDP soared by 0.6% m/m in May, surpassing
our call and the market consensus of a 0.2% gain.
This 0.6% gain is mainly due to an oil sand
upgrader (Syncrude), shut down earlier this spring
because of a fire, was restarted. Excluding this 13%
m/m jump in non-conventional oil extraction activity,
Canadian economic activity nevertheless advanced
at a solid pace of 0.3% during the month of May.
Moreover, there were 14 out of 20 industries which
registered growth during the month, supporting the
BoC’s rhetoric of a broad-based recovery. Cyclical
industries, such as manufacturing, utilities, retail
trade and professional services notably, registered
respectable gains. Without surprise, the cooling
GTA housing market contributed to a retrenchment in activity for realtors (-0.2% m/m) nationwide.
Altogether, Canadian real GDP growth is on track to advance by 3.75% q/q annualized in 2017Q2, slightly above the 3.4%
projection included in the July MPR released two weeks ago. Market participants also learned this morning that U.S. real
GDP growth advanced at a healthy 2.6% q/q annualized pace in 2017Q2. While the acceleration in North America’s
economies is undeniable, it is likely not enough yet to automatically convince the data-dependent BoC to lean in favour of
a 25bps policy rate hike on September 6th rather than on October 25th. Indeed, there are plenty of other economic
releases before September 6th that could shift the BoC’s decision one way or another. The next key report on the calendar
is the July LFS employment report that will be released next Friday (we expect a respectable 10K net job creation). Low
inflation, the strength of the Canadian dollar, uncertainty regarding NAFTA negotiations, low oil prices and slower housing
activity in the GTA are sufficient to keep the BoC on the sidelines until October.
Also, if the BoC does not want to give the immediate impression that it will rapidly normalize its interest rate policy, which
could lead to further strengthening the USDCAD (already below 1.25 after the release of today’s robust GDP report), the
BoC could start communicating relatively soon that it intends to stay put on September 6th.
Sébastien Lavoie | Chief Economist
514 350-2931 | lavoies@vmbl.ca
1615
0.75
0.50
0.25
0.00
-0.25
-0.50
-0.75
5
4
3
2
1
0
-1
Canadian Real GDP
(month-to-month % change, left scale)
Canadian Real GDP
(year-over-year % change, right scale)
Source: Statistics Canada /Haver Analytics