Canada’s economic growth showed a modest uptick in the second quarter of 2024, with the real gross domestic product (GDP) expanding by 0.5%. This follows a 0.4% increase in the first quarter, indicating a slight yet steady progression. Despite these gains, the economy faces several challenges, including declining exports, a slowing housing market, and subdued household spending.
Government expenditures saw a notable rise of 1.5% in the second quarter, largely driven by increased compensation for employees and more hours worked across all levels of government. This uptick in spending marks a rebound from the previous quarter’s decline and was bolstered by federal, provincial, and territorial government purchases of goods and services.
In the private sector, business investment demonstrated strength, particularly in machinery and equipment, which surged by 6.5%. This growth was led by higher spending on aircraft, transportation equipment, and parts, correlating with an uptick in imports of aircraft and ships. Investment in non-residential structures also contributed positively, with a 0.5% increase, primarily fueled by the oil and gas sector. However, this was offset by a 1.2% decline in non-residential building construction, reflecting reduced investments in commercial and industrial structures.
Business spending on intellectual property products, including mineral exploration and evaluation, saw a modest 0.3% increase. This signals ongoing interest in sectors linked to natural resources, although the overall impact on GDP was minimal.
Household spending growth decelerated to 0.2% in the second quarter, down from 0.9% in the first quarter. This slowdown was driven by increased expenditures on essentials such as housing rent, food, and electricity, while spending on non-essentials like new vehicles and travel abroad decreased.
Interestingly, the growth in Canada’s population outpaced household spending increases, leading to a 0.4% drop in per capita household expenditures. This marks the second consecutive quarter of per capita spending declines, underscoring the pressures Canadian households face amid rising living costs.
Canada’s trade sector presented a mixed picture, with exports of goods and services falling by 0.4% in the second quarter, following a 0.5% rise in the previous quarter. This decline was primarily attributed to reduced exports of unwrought precious metals, passenger vehicles, and refined petroleum products. Despite these setbacks, crude oil and bitumen exports saw an uptick, partially mitigating the overall decline.
On the import side, goods and services imports edged down by 0.1%. Lower imports of industrial machinery, equipment, parts, and commercial services were the main contributors to this decline. However, the decrease was tempered by a rise in imports of passenger cars and light trucks, reflecting sustained consumer demand for vehicles despite broader economic uncertainties.
The residential construction sector continued its downward trajectory, with investment in housing falling by 1.9% in the second quarter. This marks the largest decline since the first quarter of 2023 and the eighth decrease in the past nine quarters. The slowdown was driven by reduced investment in new construction, particularly in Ontario, where both single-family dwellings and apartment projects saw a drop in activity.
Renovation spending also fell by 2.6%, while ownership transfer costs, representing the resale market, declined by 1.1%. These trends suggest a cooling housing market, reflecting broader concerns about affordability and higher mortgage renewal costs.
Price pressures remained a concern, with the GDP deflator—a measure of price changes across the economy—rising by 1.1% in the second quarter. This increase was primarily driven by higher prices for household services, which continue to outpace the growth in other sectors.
The terms of trade, which measure the ratio of export prices to import prices, fell by 0.1% in the second quarter, indicating that import prices grew faster than export prices. This development suggests that Canadian businesses and consumers are facing higher costs for imported goods, adding to inflationary pressures.
Despite the economic challenges, the labour market remained resilient, with compensation for employees rising by 1.6% in the second quarter, up from 1.5% in the previous quarter. Wage growth was particularly strong in sectors such as health care, social assistance, education, finance, and insurance. Notably, retroactive payments to Ontario teachers following arbitration decisions contributed significantly to wage growth in the educational services sector.
The household saving rate also saw an increase, reaching 7.2% in the second quarter. This rise was largely due to gains in disposable income outpacing nominal consumption expenditure. However, the increase in household savings comes amidst higher mortgage and non-mortgage interest expenses, which grew at a faster pace compared to the first quarter.
Canada’s economic performance in the second quarter of 2024 presents a mixed outlook. While government spending and business investment continue to drive growth, challenges in the trade sector, housing market, and household consumption raise concerns about the sustainability of this growth. With the Bank of Canada implementing interest rate cuts in June and July, the impact on borrowing costs and consumer confidence will be closely watched in the coming months.