Strikes and floods worked their way into slower growth in this country during the year's second quarter.
Figures released this morning by Statistics Canada show annualized Q2 growth in the Canadian economy slowed to 1.7% from a downwardly revised 2.2% increase in Q1 (previously reported as 2.5%). Market expectations going into the report were for a slightly weaker 1.6% gain. A slowing was widely expected in the face of relatively extensive flooding in southern Alberta and the construction strike in Quebec that both occurred in June.
Growth in the quarter was helped by a 3.8% jump in consumer spending that helped offset the disappointing 1.3% increase in Q1.
Residential investment also rose a strong 5.4% while government spending was up 2.2%. The main offset to this strength was a 2.5% drop in non-residential investment that in part reflected the Quebec construction strike which should see a retracement in Q3.
Growth in exports slowed to 0.9% from 5.2% with activity possibly restrained by the Alberta floods. With imports up a stronger 1.5%, the net export balance deteriorated subtracting 0.2 percentage points from overall GDP growth in the quarter. Inventories subtracted an even greater 0.7 percentage points.
Also released this morning was the June GDP report which fell 0.5% in the month following a 0.2% gain in May. Market expectations had been for a slightly more moderate 0.4% drop in the month.
The weakening in Q2 growth was in part, though not solely, related to the impact of both the Alberta floods and the construction strike in Quebec. These factors also contributed to June GDP dropping 0.5% in the month.
"However," as experts at RBC Economics warily pointed out, "the construction strikes were over by July 1st and the rebuilding of destroyed Alberta properties was in full swing by the beginning of that month as well.
"As a result," the bank concludes, "we are assuming more than a full reversal of the June weakness to occur through the third quarter. This is expected to send Q3 GDP growth back up to 3.4%."
