Get ready for the political spin.
The latest GDP numbers have been released by Stats Canada.
They say GDP was up 3.7% on an annualized rate in Q2 of 2019, up from the weak 0.5% growth in the first quarter of the year.
However, the underlying numbers point to trouble ahead.
First, household consumption is almost stagnant, a sign that Canadians are tightening up their wallets in anticipation of tougher times.
And business investment actually declined for the first time in two years.
The combo of weak household consumption and the drop in business investment led to Canada’s domestic demand actually dropping in Q2, which is always a disturbing economic indicator.
The Q3 growth was thus driven by an increase in exports. Unfortunately, that is not sustainable in either the medium or long-term, as domestic demand remains the major driver of our economy. Exports currently account for about 1/3rd of Canada’s GDP, and the export increase is not expected to last.
Additionally, a portion of the GDP boost – particularly in June – was due to a retail sales jump as the Toronto Raptors went on their championship run. But that boost is of course temporary, and represents spending that will be deferred in later months.
All in all, expect this report to be spun by all main parties, with the Liberals focusing on the top-line GDP number, and the Conservatives focusing on the concerning underlying facts.
Spencer Fernando
