Canadian GDP Drops Way Below The Bank of Canada Forecast, Partially Due To Housing

Canada’s faster-than-expected economic recovery just came to an unexpected halt. Statistics Canada (Stat Can) data shows gross domestic product (GDP) declined in Q2 2021. The Bank of Canada (BoC) expected robust growth this quarter, so they were way off. Weak growth now places the country in a tricky situation, with high inflation and low GDP growth.

Canadian GDP Fell 0.3% Last Quarter

Canadian GDP made an unexpected decline in the second quarter, falling below expectations. Official numbers show a decline of 0.3% for Q2 2021, compared to the previous quarter. This follows 3 consecutive quarters of growth. It was the longest streak since the 11.3% decline at the onset of the pandemic. The agency attributed the decline to falling home sales as well as exports.

Bank of Canada Had Expected 2.0% Growth In The Same Quarter

The Bank of Canada (BoC) had significantly higher expectations for the quarter. In the July Monetary Policy Report, they had forecast an increase of 2.0% for Q2 2021. That puts them 2.3 points below the expectations they had in their growth models. Since the report is released the month after the quarter ends, the quarter wasn’t expected to be this off. 

Canadian Quarterly Real GDP Growth

The quarterly growth for real gross domestic product (GDP) in Canada, and the central bank’s forecast before official numbers are released.

Source: BoC; Better Dwelling.

Unexpected Quarter Puts Canada In A Tricky Place 

Calling the quarter was a little more difficult than it seems, surprising even Stat Can. The agency’s “flash estimate,” or preliminary numbers, expected an 0.6% increase for Q2 GDP. In an investor note, BMO attributed the expectation gap to consumer spending. Households are holding back on spending, and not quite doing it in the volumes expected. Not for a lack of income apparently, but they’re just saving the cash.

The divergence of expectations means the BoC will have some tough decisions ahead. Inflation is ripping higher, crushing household expenses. Typically this would be addressed by increasing the overnight rate. However, the economy doesn’t appear strong enough to handle less rate stimulus.

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  • Michael Wright 3 years ago

    Morneau’s legacy influence on housing and not restricting additional mortgage liquidity as a part of QE is going to an embarrassingly slow recovery that’s essentially just a ponzi scheme.

    • David Chan 3 years ago

      Canada’s use of QE BEFORE a housing slowdown has to be one of the dumbest moves of all time. The fact it’s still going when countries like New Zealand are still running it, is embarrassing.

      • Jupiter 3 years ago

        Those mortgage deferrals last year was the biggest mistake. Now its too late to fix.

  • Taryn 3 years ago

    It appears the Bank of Canada is exceptionally bad at forecasting growth. Especially if these are taken the month before. I just double checked, and some of the private commercial banks are even better at this than they are. Wow.

    • Lou Chao 3 years ago

      The central bank also thinks they influence the growth of the economy, so they always bias positive because they think they’re better than they are.

    • sn 3 years ago

      You don’t think that all this is to build “confidence” and manage “future expectations”? Like Statscan massages CPI numbers to make inflation look lower and set consumer expectations. This whole confidence ponzi is starting to break up, starting with the BoC’s recent and regular forecasts of “transitory inflation” not matching anyone’s bills.

  • Nassim 3 years ago

    How is GDP not impacted by any immigration? LOL.

    Immigration helps GDP if it’s productive immigration. Not when you’re ramming people in to work two minimum wage jobs to makes ends meet, and barely able to afford rent.

  • D 3 years ago

    Q3 will also be negative growth so that means Canada is in a recession. Basically since corona we are still below 2019 gdp and adjusted for real inflation way below…

    • Rand Passmore 3 years ago

      This is not particularly worrisome at this point. In fact it bodes well for the longer term. It does look like Canadian’s spending is temporarily on hold and savings up.

  • V 3 years ago

    The government tries to control everything and everyone. And we have the greatest affordability crisis on our hands. Average rents are $1700 per month. How are people suppose to feed themselves? This is outright wrong and they need to do something immediately!

    • D 3 years ago

      “How are people suppose to feed themselves?”

      They don’t care, they need the margins. Rents in the 80’s were $200-300, adjusted for inflation in todays dollar about $800-900 which is where current rents should average.

  • bill morgan 3 years ago

    what goes up must come down. And again, and again, and again.

  • Mandy 3 years ago

    Who are all these people I keep hearing about that are saving money right now?! In BC we not!

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