Canada's economy accelerated far more than expected in the second quarter, racking up the strongest pace of growth in almost six years, as consumers continued to spend and energy exports rose, data from Statistics Canada showed on Thursday. This shattered market expectations for a 3.7% increase, according to economists at Royal Bank of Canada, and follows a 3.7% advance in the January-to-March period.
Statistics Canada says the increase in real gross domestic product in the second quarter was driven by household spending and exports, particularly in the form of energy products. GDP has averaged annual growth rates of just 2.2 percent in this recovery, which is now the third longest in US history.
Most experts believe the central bank will raise interest rates just once more this year, but a faster economy or an increase in wages or inflation could prompt policymakers to move more quickly to tighten monetary policy and shrink the Fed's balance sheet in 2018. That was its first rate hike in seven years. Services sector, meanwhile, grew at a slow and stable rate of 0.2 percent on comparatively widespread gains, stated TD Economics.
"It is the best quarter since the first quarter of 2015", said Mickey Levy, at Berenberg.
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Paul Ashworth, chief US economist at Capital Economics, said he believed that the strength in consumer spending should result in an "even stronger hand-off" for growth going into the current quarter.
President Donald Trump's administration has set a goal of 3 percent economic growth for the year, but some economists have said that's unlikely.
Business spending got a boost from software, helping intellectual-property investment rise at a 4.9 percent pace, up from an initially reported 1.4 percent.
But they do not expect it to be sustained at this level, and they warned that the drag on growth from Hurricane Harvey is likely to be substantial given the extent of the damage wrought by rains and flooding. "That's some numbers. And I happen to be one that thinks we can go much higher than three percent". Both forecasting firm Macroeconomic Advisers and the Federal Reserve Bank of Atlanta's GDPNow model were predicting a third-quarter growth rate of 3.4% ahead of Wednesday's report. "Better than expected 2Q GDP results imply a bit less sequential growth in 3Q GDP".
The U.S. economy rebounded sharply in the spring, growing at the fastest pace in more than two years amid brisk consumer spending on autos and other goods. "This could subtract 0.2 % to third quarter GDP growth, although this may be higher when the estimates on the damages will be available", stresses Chris Low, chief economist FTN Financial.