The Canadian economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%, while growth in June was likely stable, a result that would allow the Bank of Canada (BoC) to maintain its rates .
The second-quarter figure was well below the Bank of Canada’s forecast for annualized gross domestic product (GDP) growth of 1.5%, with June down 0.2% from May.
“The Canadian economy may have already entered a modest recession… The numbers leave little doubt that the BoC will keep interest rates unchanged next week,” said Stephen Brown, economist. Deputy Chief Executive Officer for North America at Capital Economics.
The slowdown was largely due to a decline in real estate investment and less inventory accumulation, as well as a slowdown in international exports and household spending, according to Statistics Canada.
In June, forest fires affected several sectors, notably mines and quarries.
This report constitutes the last important data before the BoC’s monetary policy decision this Wednesday. Thirty-one of 34 economists polled by Reuters expect no change in the overnight interest rate.
“It’s easy for the bank to say, ‘Monetary policy is still working and warrants a hold position at this month’s meeting,'” said Andrew Kelvin, chief Canada strategist at TD Securities.
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