Today’s May Canadian GDP report met expectations at +0.3% but the advance estimate for June was -0.2%. With that, CIBC calculates that growth in the quarter is tracking close to 1.0%, less than the 1.5% assumed in the latest Bank of Canada estimates. Some of that was due to a drag from forest fires and a public sector strike, so underlying momentum and a rebound should aid Q3.
CIBC writes:
With today’s data suggesting that growth was a little weaker than the Bank of Canada’s MPR
projection in Q2, there is a clear risk that policymaker’s won’t hike interest rates one more time as we had previously
anticipated. However, because the slowdown in growth during Q2 was at least partly driven by supply side disruptions
within public admin and the energy sector, we suspect that signs of continued loosening in the labour market and the
trend in core inflation will be more important for the Bank as it determines whether to raise rates again or move back onto
the sidelines. We will get more information on that front with the labour force survey next week.
Current pricing has Sept BOC rate hike odds at 30% but that doubles for the October meeting.
In a separate report out this week, National Bank questioned how much excess savings are really available for Canadians. They note that nominal bank account deposits are still 28% higher than
they were before the pandemic but that they are only 7% higher than they were in 2019Q4 after accounting for inflation
and population.