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Economic News

Canada: Headline GDP Gains Continue, but So Does Per Capita Weakness

July 31, 2024
Marc Desormeaux, Principal Economist • LJ Valencia, Economic Analyst

Highlights

  • Canadian real GDP rose by a decent 0.2% in May 2024, following a 0.3% gain in the prior month. The advance was one tick above the consensus of economic forecasters and a touch better than the Statistics Canada flash estimate published last month  (0.1%). Fifteen of 20 subsectors posted increases. See Table 1 for further details.
  • The 0.1% flash estimate for June (graph 1) implies a 2.2% annualized gain in the second quarter of 2024 and nudges our tracking for Q3 slightly higher to just above 1%. However, that early third quarter estimate is well below the 2.8% forecast from the Bank of Canada (BoC) published in last week’s Monetary Policy Report (MPR).


Implications

May 2024’s headline GDP gain was better-than-expected and advances were relatively broad-based. The manufacturing sector also grew for the second consecutive month, offsetting some of its early-year weakness. Additional support came from finance and insurance—which continue to prove resilient to the effects of higher interest rates—and new transportation capacity as the Trans Mountain pipeline expansion (TMX) came online. 

That said, real GDP gains continue to lag the pace of population growth (graph 2). In June, we highlighted that Canadian output per person had fallen in six of the past seven quarters External link.—a streak not previously seen outside of a recession. Today’s data suggest it will be seven out of eight once the Q2 GDP by expenditure and population data are released in the months ahead. Given that job creation is being far outpaced by headcount gains External link., all signs suggest economic slack continued to increase in the second quarter.

Our outlook for GDP remains less optimistic than the BoC’s, in large part because of differences in the forecast trajectory for population growth. In our view, the balance of risks tilts more towards weaker growth and more motivation for the Bank to cut rates. Recall that the July 2024 MPR External link. penciled in an optimistic 2.8% annualized expansion for Q3 2024. That reflected still-strong headcount gains driving consumer and housing demand, with additional support from strong exports via increased pipeline capacity from TMX. In contrast, our forecast incorporates recent softness in the labour market and other key indicators such as retail sales and wholesale trade. We also assume population growth will slow meaningfully External link. over the coming quarters as Ottawa’s planned temporary resident cuts take effect.

In all, solid headline GDP gains don’t change our call that the BoC will cut its policy rate again in September. Following ongoing labour market softness, the continued easing of price pressures and increasingly dovish language in last week’s MPR, more per-person economic weakness adds to the case for additional monetary easing.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.