Canada Economy Contracted In 2023

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Canada Economy Contracted In 2023

Canada's Economy Contracted By 0.2% In Q2 2023

The data released on Friday shows that the Canadian economy didn't register any growth during Q2. In fact, the economy contracted during Q2 2023 by 0.2%. However, the real GDP of Canada remains pretty much unchanged, which has caused concerns among economists.

The Bank of Canada had made a forecast that the annualized GDP of the country would grow by 1.5%. Similarly, the economists were touting a growth of 1.2% during the same period. But the actual result turned out to be a 0.2% contraction instead of any growth.

GDP Growth Affected By Slow Exports & Inventory Accumulation

According to experts, the reason behind the Q2 economic contraction can be attributed to a decline in the small inventory accumulation and the housing investment. Similarly, international exports from Canada are also going through a slowdown.

The MoM decline during June was pretty much in line with expectations as the wholesale trade remained the biggest factor weighing on the economy. At the same time, the wildfires in Canada also had adverse effects on many industries, such as rail transportation, mining, and so on.

Initially, Statscan had a forecast of 0.3% growth for GDP during May, which has now been downgraded to only 0.2% only. Similarly, the Q1 annualized growth has also received a revision from an earlier value of 3.1% to 2.6%.

The recent GDP report of Canada is released at a crucial time as the markets await the BoC decision about its interest policy.

For now, the Bank of Canada's interest rate is sitting near 5.0%, which is a 22-year high. At the same time, the inflation touched 8.1%, which was a 40-year high and way higher than the 2% target of the central bank.

The fall in housing investment correlates with the high-interest environment in Canada and thus highlights how closely related these two really are! Looking ahead, the BoC will have a tough decision to make about whether it wants to prioritize growth or focus on controlling inflation.

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