The economy surged past expectations with across-the-board growth in the second quarter, giving the country its best start to a calendar year since 2002, Statistics Canada said Thursday.
Canadian consumers, reassured by a strong job market and better wages, continued to flip open their wallets as real gross domestic product expanded at an annual pace of 4.5 per cent, the agency said.
The sturdy growth provided the latest evidence that economic momentum has continued to build in 2017. It arrived with the Bank of Canada widely expected to once again hike its benchmark rate in the coming weeks.
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The last time quarterly growth climbed as high as 4.5 per cent was six years ago when it hit 5.7 per cent.
Household spending stood out for many analysts in Thursday’s report. It grew 4.6 per cent, on a year-over-year basis, between April and June, a follow-up to a 4.8 per cent reading in the first quarter.
“Make no mistake, those are extremely strong numbers,” said Jimmy Jean, senior economist with Desjardins.
“It’s another very impressive performance for the Canadian economy.”
Combined with the 3.7 per cent expansion over the first three months of 2017, Jean said the economy posted annualized growth of 3.6 per cent in the first half of the year. Statistics Canada called it the strongest six-month start to a calendar year in 15 years.
“Canadian GDP is gangbusters,” said Manulife senior economist Frances Donald, who called consumer spending Canada’s “pillar of growth.”
She said spending is unlikely to slow down because the numbers show Canadians actually saved more during the quarter as well.
“There’s still fuel in the consumer’s tank,” said Donald, who credited robust economic fundamentals like job and wage growth for spending’s resilience.
Exports, particularly in the form of energy products, also gave a lift to real GDP in the second quarter. On the energy front, however, analysts said some of the improvement was due to last year’s comparably weak numbers, pulled down after oil facilities shut down because of Alberta wildfires.
Taken together, exports expanded in the second quarter at an annualized rate of 9.6 per cent, Jean said.
The quarterly GDP increase came even though housing investments contracted at an annualized rate of 4.7 per cent during a period that saw the introduction of a new Ontario tax on foreign buyers in April.
A consensus of economists had predicted Canada to deliver a second-straight growth reading of 3.7 per cent, according to Thomson Reuters. The Bank of Canada had predicted second-quarter real GDP to expand by three per cent in its latest forecast, released in July.
Citing the strengthening economy, the central bank raised its rate in July for the first time in seven years to 0.75 per cent from 0.5 per cent.
Its next rate announcement is scheduled for the upcoming week. Before Thursday’s release, many economists had been predicting the bank to only raise its rate again in October.
The GDP report was enough for CIBC chief economist Avery Shenfeld to change his mind. He thinks a rate hike is now more likely to land next week than in October.
“The bank can clearly argue that the economy simply doesn’t need rates as low as they have been to generate decent economic growth,” Shenfeld wrote in a research note.
For their part, Donald and Jean expect Bank of Canada governor Stephen Poloz to wait until October, once he’s had time to telegraph the second rate increase.
“Of course, nothing is entirely to be ruled out, especially with governor Poloz,” said Jean, who recalled the bank’s two 2015 rate cuts.
“He has surprised us in the past.”
The second-quarter acceleration was fuelled by an eighth-consecutive monthly GDP increase in June that included the construction sector’s largest gain in four years. The report said 14 of 20 industrial sectors saw growth in June as GDP expanded by a stronger-than-expected 0.3 per cent.
The strong June number also suggests the third quarter could be off to a good start.
Before the report, Desjardins was projecting 2.9 per cent growth for 2017. Jean now expects that prediction to head north of three per cent.