Canada's Surprise Growth Fails to Change Interest Rate Outlook

Canada's economy has delivered an unexpected boost in growth, beating forecasts by nearly a full percentage point. The country's real gross domestic product (GDP) rose 0.3% month-over-month in May, pushing the preliminary annualized estimate for Q2 to approximately 3.4%. This is significantly higher than the Bank of Canada's own July forecast of 2.5%.

Economists from major banks TD, CIBC, RBC, and BMO agree that despite this surprise growth, interest rates will remain unchanged at 2.25%. Douglas Porter, chief economist at BMO Capital Markets, frames May's result as a rebuttal to months of downturn anxiety: 'it's now clear that the underlying economy is still grinding ahead, with GDP up 1.7% from year-ago levels.'

Andrew Grantham, executive director and senior economist at CIBC Economics, notes that annualized Q2 growth was 'flattered somewhat by a reversal of one-off factors', including below-normal spring maintenance in the oil sector and temporary Census hiring. However, he emphasizes that the underlying pace of growth is closer to 1.6% annualized.