Canada’s GDP Rebounds 0.8% in Q2 2024, Led by Services and Government Spending

Canada’s real gross domestic product (GDP) rose 0.8% in the second quarter of 2024, rebounding from a flat reading in the previous quarter, according to data released by Statistics Canada on August 30, 2024. The expansion, which came in slightly above market expectations of 0.7%, was driven by increases in services-producing industries and government spending, though per-capita output continued to decline.

What drove the quarterly growth?

Services-producing industries led the gain, expanding 0.8% in Q2, while goods-producing industries grew 0.6%. Government spending rose 1.6%—the largest quarterly increase since 2021—bolstered by higher public sector compensation. Household spending was more subdued, advancing just 0.3% as consumers continued to grapple with elevated interest rates and rising debt costs.

Business investment in non-residential structures increased 1.4%, and housing investment rose 1.3% for the second consecutive quarter, reflecting some stabilization in the real estate market. However, inventory accumulation subtracted 0.5 percentage points from overall growth, partially offsetting the gains.

Why does this matter for the economy?

The rebound signals that the Canadian economy avoided a technical recession in the first half of 2024, but the underlying picture remains uneven. On a per-capita basis, real GDP fell 0.2% in Q2, marking the fifth consecutive quarterly decline. That suggests the overall growth is not translating into improved living standards for the average Canadian, a concern for policymakers and households alike.

The Bank of Canada, which has held its key interest rate at 4.5% since April, will likely weigh this mixed data in its upcoming decision on September 6, 2024. While the headline growth is welcome, weak per-capita performance and subdued consumer spending may reinforce the case for a rate cut later this year.

What should readers understand?

For investors, the GDP rebound supports a cautiously optimistic outlook for Canadian equities, particularly in rate-sensitive sectors like real estate and consumer discretionary. For businesses, the uptick in government spending and non-residential investment suggests continued public-sector demand, but the softness in household spending indicates that private consumption remains under pressure.

Economists will be watching upcoming monthly GDP data for July and August to see if the momentum carries into Q3. A sustained recovery would depend on easing inflation and a more robust pickup in consumer spending, which remains constrained by high borrowing costs.

Conclusion

Canada’s economy expanded at a 0.8% quarterly pace in Q2 2024, a solid rebound from the previous quarter’s stall, but the decline in per-capita output highlights persistent structural challenges. With the Bank of Canada’s next rate decision imminent, the data provides a nuanced backdrop: growth is positive, yet not broad-based enough to signal a strong, inclusive recovery.

FAQs

Q1: What does GDP QoQ mean?
GDP QoQ (quarter-over-quarter) measures the change in a country’s economic output from one quarter to the next, seasonally adjusted. A 0.8% increase means the economy grew by that percentage in Q2 2024 compared to Q1 2024.

Q2: Why is per-capita GDP falling if the economy is growing?
Per-capita GDP divides total output by population. If the population grows faster than GDP, per-capita output declines. Canada’s population growth, driven largely by immigration, has outpaced economic growth in recent quarters, leading to lower average output per person.

Q3: How might this GDP report affect the Bank of Canada’s interest rate decision?
The stronger-than-expected growth may reduce the urgency for an immediate rate cut, but weak per-capita performance and subdued consumer spending could still prompt the Bank to ease policy to support the economy. The decision will depend on a broader set of indicators, including inflation and employment data.