Canada: Strongest first-half growth since 2002 – ING

In view of James Smith, Economist at ING, it was another buoyant quarter in Canada with second quarter GDP increasing by an impressive 4.5%, over-taking the first quarter’s solid performance and forecasts of 3.7%.

Key Quotes

“It has remained top amongst its industrialised peers, even after the United States’ solid second quarter growth reading of 3.1%.”

“Exports of goods and business investment were both key drivers. Household consumption was strong too, where Canadian consumers have been benefiting from a resilient labour market. In fact, all major components grew in the second quarter (with the single exception of the housing sector). “

“The big question though, and one that is at the forefront of many industrialised countries minds, is whether inflation will follow suit. The Bank of Canada takes a forward-looking approach here, looking for the recent economic strength to boost prices in the medium term. With that in mind, and following the strongest first-half growth Canada has seen since 2002, markets are currently pricing the odds of an October rate hike at 76%. We agree and expect to see a few more hikes thereafter, although there will continue to be a degree of caution given persistent NAFTA uncertainty and high household debt.”