Canada’s economy unexpectedly shrank in the second quarter and likely had far less momentum than had been expected heading into the summer, data showed on Tuesday, in the middle of election campaigning.
The economy shrank 1.1% in the second quarter on an annualized basis, missing analyst expectations of a gain of 2.5%, Statistics Canada data showed, while a preliminary estimate for July showed a contraction of 0.4%. June GDP rose 0.7%, in line with expectations.
With the July decline, economic activity remains about 2% below pre-pandemic levels, Statscan said.
“It seems that the Canadian economy wasn’t on as strong a footing as we had believed,” said Royce Mendes, senior economist at CIBC Capital Markets. “And with the fourth wave (of the pandemic) now seemingly here, the economy faces another storm to navigate through.”
Canada’s COVID-19 infections are rising once more, mostly among the unvaccinated. The United States added here Canada to its “reconsider travel” advisory list on Tuesday.
Canadians go to the polls on Sept. 20, with Prime Minister Justin Trudeau’s Liberals in a tight race here with the Conservatives, led by Erin O’Toole, who were quick to pounce on the disappointing numbers.
“Trudeau said the economy would come ‘roaring back’. Instead it’s snoring back,” Conservative lawmaker Pierre Poilievre tweeted.
Statscan said the second-quarter drop was mostly driven by declines in home resale activities and exports. Housing investment boomed during the pandemic, running far above the five-year average in the previous four quarters.
The quarterly contraction was far below the Bank of Canada’s July forecast of a 2.0% gain on an annualized basis, though analysts were mixed on whether it would affect an expected tapering of the bond-buying program later this year.
“(The Bank of Canada) is also dealing with the highest inflation in a decade and I suspect they will keep pushing ahead with QE tapering, but it will be a big debate,” said Doug Porter, chief economist at BMO Capital Markets.
The Canadian dollar gave up its earlier gains to trade 0.1% lower at 1.2612 to the greenback, or 79.29 U.S. cents.