Canadian GDP was essentially unchanged in May, with growth in services-producing industries (+0.4 per cent) offsetting declines in goods-producing industries (-1 per cent). GDP grew in 14 of 20 subsectors. Canadian real GDP is roughly 2.2 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy grew 0.1 per cent in June.
Unlike the United States, which just experienced back to back quarters of negative GDP growth, the Canadian economy is on track to average a solid 3.5 per cent over the first half of 2022. However, the impact of a clearly slowing US economy and an aggressive Bank of Canada will likely start to slow growth toward the end of this year and into 2023. Indeed, bond markets are already beginning to price in the impact of slower growth (or even recession) with 5-year bond yields down more than 100bps in the last month. If that trend continues, 5-year fixed mortgage rates should follow, providing much needed relief to the housing market. With slower GDP growth, indications that inflation may be nearing its peak, and the fact that the bank's interest rate is now within its neutral range of 2-3 per cent, we expect the bank to begin slowing its pace of rate increases going forward.
For more information, please contact: Gino Pezzani.