Canada’s economy shrank in Q2, according to the BoC; however it’s still predicting a bounce back by the end of the year.
“Second-quarter GDP was pulled down by the Alberta wildfires in May and by a drop in exports that was larger and more broad-based than expected,” the Bank of Canada said in its announcement. “Exports disappointed even after accounting for weaker business and residential investment in the United States, adjustments in the resource sector, and cutbacks in auto production.”
Oil production is expected to rebound and rebuilding within Alberta is predicted to start in Q3
“As federal infrastructure spending starts to have more impact, growth in the fourth quarter is projected to remain above potential,” the Bank said. “While the strength in exports during July was encouraging, the ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated in July.”
Financial vulnerabilities still exist, however, with household imbalances continuing to worry the Central Bank.
“On balance, risks to the profile for inflation have tilted somewhat to the downside since July. At the same time, while there are preliminary signs of a possible moderation in the Vancouver housing market, financial vulnerabilities associated with household imbalances remain elevated and continue to rise,” the Bank said. “The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate.”
The global economy, meanwhile, grew at a slower clip than the Bank had predicted in July.
However, it is expected to show signs of strength in Q3 and beyond.
“The US economy was weaker than expected in the second quarter, notably reflecting a contraction in business and residential investment,” it said. “While a healthy labour market and solid consumption should remain supportive of growth in the rest of the year, the outlook for business investment has become less certain. Meanwhile, global financial conditions have become even more accommodative since July.”
The Bank of Canada held the target for the overnight rate at ½% Wednesday.