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Economy in Brief

Second Quarter GDP Growth in Canada Accelerates 
by Louise Curley August 31, 2004

The pause in GDP growth in many countries in the second quarter was not apparent in Canada. Real GDP in Canada rose 4.3% after a revised 3.0% in the first quarter. The consensus expectation was for a 5% rise, but that was before the upward revision of the first quarter from 2.4%. Canada's growth rate in the second quarter compares with 2.8% for the U. S. 1.67% for Japan and 2.06% for Euro Zone.

Increases in business capital spending and exports outweighed the declines in the rates of spending on personal and government consumption and an actual decline in government spending on plant and equipment. Business reduced inventories at an annual rate of C$3,544 million after having reduced them at an annual rate of C$44,672 million in the first quarter. The business reduction in inventories in the second quarter was offset by a C$1,325 annual rate of accumulation by the government sector.

The increase in activity has begun to put pressure on prices as can be seen in the widening gap between real and nominal GDP in the attached chart. The Deputy Governor of the Bank of Canada, David Longworth, has only last week commented on the Bank's commitment to raise rates to check inflation. The overnight funding rate, which is currently 2%, is the rate policy targets. It was last changed on April 13, 2004 when is was lowered by 25 basis points. The next meeting of the monetary authorities is on September 8, 2004.

Seasonally adjusted annual rates of change Q2 04 %   Q1 04 %  Q4 03 % Q3 03 % 2003 %   2002 %   2001 %
Gross Domestic Product nominal 10.19 7.63 4.76 4.18 5.25 4.45 2.94
Gross Domestic Product real 4.29  3.01 2.20 1.36 2.02  3.44 1.80
  Personal consumption 1.30  6.44 0.67 4.37 3.13 3.39 2.68
  Government consumption 1.24  3.18 3.86 0.41 3.80 2.80 3.70
  Business fixed investment   4.71  7.42 5.22 14.87 4.61 1.41 3.33
  Exports of goods and services 21.57  6.09 9.44 -1.94 -2.39  1.12 -2.83
  Imports of goods and services 13.34  3.77 17.77 -3.02 3.81 1.45 -4.98
Difference at annual rate              
  Business inventory change -3,544 -44,672 35,000 -44,988  9,753 6,466 -17,696
  Government inventory change 1,328 -336 -112 -64 54 -53 -10
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