‘Medal-winning’ or weakening economy? Economists react to GDP numbers

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Canada’s latest economic data surpassed expectations, but some economists believe some serious weakening is on the horizon.

Gross domestic product rose 0.2 per cent in May, following a 0.3 per cent climb in April, while projections for June show an increase of 0.1 per cent, Statistics Canada said on Wednesday.

Here’s what economists had to say about the latest economic data.

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Economy showing resilience: TD

Marc Ercolao, an economist at Toronto-Dominion Bank, said if the growth-tracking measures are realized, Canada’s economy will have just had its best quarter since 2022.

“The Canadian economy appears to be showing some resilience in the second quarter, led by a strong showing in the goods sectors,” he said in a note. “Advanced guidance for June suggests that current strength may not be sustained.”

Quieten talk of steep cuts: BMO

Douglas Porter, chief economist at the Bank of Montreal, said the latest GDP data should quiet some of the critics who are calling for the Bank of Canada to make steeper interest rate cuts.

“Make no mistake, the Canadian economy is paddling fast just to keep its head above water, but it is still managing to slowly move forward,” he said in a note. “Canada’s economy is still walking that fine line of struggling to keep upright, but just staying out of serious trouble, consistent with continued, measured interest rate cuts.”

Porter said interest rate cuts in the 50-basis-point range would require some “extremely weak data” and slowing inflation.

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Momentum waning: Desjardins

Royce Mendes, managing director and head of macro strategy at Fédération des caisses Desjardins du Québec, said the economy is surpassing expectations, but the numbers suggest the economy is slowing down.

“Growth in May was largely due to the continuing rebound in the manufacturing sector and the opening of the (Trans Mountain) pipeline,” he said in a note. “The retail industry was the largest drag, as consumers continued to pull back.”

If this trend continues, Mendes believes the economy will fall short of the Bank of Canada’s projections for the third quarter.

‘Feeling the pinch’: CCC

Andrew DiCapua, a senior economist at the Canadian Chamber of Commerce, said the latest data shows high interest rates are weighing on the retail sector.

“Despite this, the resilience of key industries like manufacturing and pipeline transportation has lifted the second-quarter GDP estimate above the Bank of Canada’s forecast,” he said in a note.

‘Medal-winning performance’: CIBC

Avery Shenfeld, chief economist at CIBC Capital Markets, said the economy grew about 0.5 per cent faster than projections for the quarter.

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“Canada’s economy did marginally better than we expected in the closing months of the second quarter, while registering a medal-winning performance when judged in terms of per capita output gains,” he said in a note.

Shenfeld said he expects second-quarter GDP to be adjusted slightly higher, but not enough to impact the Bank of Canada’s next rate decision in September.

— With files from Naimul Karim.

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