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2nd Q Growth Strengthens BoC Case For October Rate Hike


Canadian Economics Growth Q2'2017 - August 31, 2017

The Canadian economy posted a second consecutive quarter of stellar economic growth, with real GDP expanding by  an annualized 4.5 per cent in the second quarter of 2017.  That is the strongest rate of economic growth since the third quarter of 2011.  Quarterly real GDP growth has averaged a remarkable 3.7 per cent over the past four quarters.  Growth  in the second quarter was was led by strong household consumption, which grew 4.6 per cent, as well as a nearly 10 per cent rise in exports and and and a 7 per cent increase in non-residential business investment.

Today's strong economic data solidifies the Bank of Canada's case for raising interest rates at least one more time this year, likely at its meeting in October rather than at its September meeting next week. While the Bank's primary motivation for increasing rates seems to be withdrawing the stimulus introduced following the 2015 oil shock,  growth in the Canadian economy has been well above the Bank of Canada's estimate for long-run or potential economic growth for the past year which means existing slack in the economy is being eliminated quickly. That should, in turn, lead to inflation rising at or above the Bank's 2 per cent target in coming months. Interest rate increases by the Bank beyond the this year will depend crucially on how the outlook for inflation develops.