Statistics Canada released second quarter GDP numbers on Thursday that showed 4.5% growth, establishing Canada as one of the strongest performers in the G7. This is also the strongest quarterly growth seen since 2002. Economic growth has been powered by low interest rates and impressive jobs numbers, although the majority have been part-time. The numbers come with a caveat, as has been the case throughout 2017. Economists are stressing that Canadians are still living beyond their means, as household spending increased 1.9% in the quarter – the fastest growth since 2007.
The S&P/TSX Index rose 0.40% as of the noon hour on Thursday. In late August the index dipped below the key 15,000 mark on worsening geopolitical tensions and another dip in oil prices. In spite of jobs and GDP numbers consistently beating expectations in 2017 the index has dipped 0.61% this year. These recent numbers may all but guarantee that the Bank of Canada will go ahead with a second rate hike in September or October.
The promise of an additional rate hike may be giving investors pause even with strong economic numbers to boost sentiment. The Canadian economy has benefited from historically low rates and further tightening will put added pressure on a population that is already burdened by record consumer debt. Canadian debt-to-income ratio remains around 167% and further rate hikes could put pressure on those who are over-leveraged. This is enough to justify skepticism for investors who have elected to exercise patience even in light of these good numbers.
