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Here are segments of an important update from


Canada’s economy recovered from the winter wallop
Canada’s economy recovered strongly in the second quarter with real GDP growing at an annualized 3.1% rate. This was a marked improvement from the first quarter’s revised 0.9% gain and confirmed that first-quarter, weather-related weakening in activity temporarily reduced the economy’s momentum. The gain was broadly based with domestic demand rebounding by 3.0% following the 0.2% decline reported in the first quarter. Net exports also provided a solid boost to the growth rate in the second quarter. Extreme cold earlier this year hampered transportation facilities, rail systems in particular, and contributed to first-quarter declines in both exports and imports. In the second quarter, exports jumped by 17.8% and imports rose by 11.1%. The greater rise in the former resulted in net exports contributing 1.7 percentage points to annualized GDP growth in the second quarter.


And the beat goes on…..
In July, Canada’s trade deficit in volume terms narrowed for the third consecutive month, which augurs well for an improvement in the third quarter relative to the second-quarter average. This early read tracks a potentially stronger contribution to growth from net trade in the third quarter than the 1.7 and 1.6 percentage point additions in the second and first quarters, respectively. The addition from net trade in the third quarter would mark the eighth consecutive quarterly support from the component, the longest such streak on record back to at least 1981. Moreover, recent improvements have been led by strength in exports rather than import weakness with
the level of real exports in July already an annualized 13.7% above its second-quarter average.

Bank of Canada sees no need to change policy stance
The Bank of Canada left the overnight rate at 1.0% and the neutral policy basis intact earlier this month despite the stronger than expected gain in real GDP. When combined with the downgrade to the first quarter’s growth rate, the Bank said it left the level of real GDP in line with its expectations. The Bank highlighted the improvement in Canadian exports in the second quarter although stated that the upward momentum needs to be sustained in order to support business investment and employment gains. This sentiment indicates that more evidence will be needed before any change to policy will occur. The main tenet of the Bank’s July position appeared to be unchanged with the economy needing to “reach and remain at full capacity” in order for its inflation target to be met on a sustained basis and that monetary policy support continues to be required. The Bank expects the economy to reach full capacity “during the next two years.” In July, the Bank stated that the economy was expected to “reach full capacity around mid-2016.”


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