The Canadian economy expanded at an annualized rate of 2.1% in the second quarter of 2024, exceeding the Bank of Canada’s estimate of 1.5% and surpassing economists’ expectations. However, despite this growth, GDP per capita declined for the fifth consecutive quarter, according to data released by Statistics Canada on Friday.
While household spending continued, it slowed, with essentials such as rent, food, and electricity driving the increase. This spending was offset by reduced purchases of trucks, vans, utility vehicles, and lower expenditures abroad.
A key contributor to the economic growth was a 1.6% rise in employee compensation, particularly in sectors like mining and oil and gas extraction. Wages also increased in healthcare, social assistance, educational services—partly due to retroactive payments for Ontario schoolteachers—and finance and insurance.
Andrew Grantham, an economist at CIBC, described the economic growth as “modestly better than expected,” but noted weak momentum heading into the third quarter, citing flat monthly growth in June and a similar forecast for July. This, he said, provides “ample reason for the [Bank of Canada] to continue cutting interest rates.”
The Bank of Canada is set to hold its September interest rate meeting on Wednesday, where it is anticipated to reduce the key interest rate by 25 basis points, bringing it down to 4.25%.
Government spending was a significant driver of the quarterly growth, bolstered by higher wages for public employees and increased hours worked across all levels of government. Business investment and spending also rose, particularly in machinery, with notable increases in aircraft and transportation-related equipment.
However, housing investment declined by 1.9%, marking the most significant drop since the first quarter of 2023, driven by reduced investment in new construction and renovations. While investments in non-residential structures grew, they were offset by declines in non-residential building construction.
Andrew DiCapua, a senior economist with the Canadian Chamber of Commerce, noted that despite the stronger GDP growth, “the underlying reality is less impressive,” attributing much of the growth to government spending and wage adjustments. He anticipates another rate cut at the Bank of Canada’s upcoming meeting, as the economy continues to show signs of underlying weakness.
