Canadian growth accelerated in the second quarter, reaching 2.1% compared to 1.8% in the first (annualised figures). Thus, the country ends the first half of a reasonably successful year in terms of growth driven by public expenditure, investment, and population growth.
Government spending rose 1.5% compared to the previous quarter, driven by higher wage and salary levels. This is a one-off phenomenon (the government cannot afford to continue increasing its spending rapidly). Still, it immediately benefits households' purchasing power and ability to save.
Investment also improved, particularly in the purchase of machinery and other equipment (+6.5%).
Finally, while household spending has been a bit flat, the country is growing in the number of households, so overall, the domestic market remains on an upward slope.
Not everything is rosy
The real estate market continues to weigh on the economy. Household investment remains weak, dominated by the residential sector. At the same time, imports are falling less rapidly than exports, leading to a deterioration in external trade.
On the other hand, the household saving rate is increasing to around 7.2% of disposable income. With the Bank of Canada starting to lower policy rates and expected to continue making credit cheaper, conditions seem right for a rebound in household demand in the coming quarters.
We continue to invest in Canada through our neutral and dynamic portfolios.