Canada’s GDP contracted by about 1 per cent in the second quarter, the Bank of Canada said in its interest rate policy statement on Wednesday.
That contraction was more serious than the Bank anticipated in its July Monetary Policy Report (MPR). This largely reflects a contraction in exports, due in part to supply chain disruptions, especially in the auto sector.
Housing market activity pulled back from recent high levels, largely as expected. Consumption, business investment and government spending all contributed positively to growth, the Bank said, with domestic demand growing at more than 3 per cent. And employment rose through June and July, with hard-to-distance sectors hiring as public health restrictions eased. This is helping to reducing unevenness in the labour market, although the Bank says “considerable slack remains,” with low-wage workers disproportionately affected.
The Bank expects the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.
The Bank also announced that it is holding its target for the overnight rate at the effective lower bound of 0.25 per cent, with the Bank Rate at 0.5 per cent and the deposit rate at 0.25 per cent.
Read the full announcement here.