We think tomorrow’s Q2 GDP release is likely more important than employment given the market’s emphasis on the BoC’s optimistic outlook.
The market expects a modest rise in the monthly GDP growth figures but still looks for another contraction in the annualised (quarterly) figure. This translates into flattish growth from over a year ago.
Recall, the BoC expects the economy to grow 1.1% in Q2 from over a year ago and to finish the year at 0.7% in annual terms. The recent slide in oil prices clouds this outlook, increasing the potential for fresh downward growth revisions at the BoC’s October MPR release.
In 2016 it expects annual growth of 2.8%. This requires a sharp pickup in growth at the end of 2015 and for all of 2016. We estimate postcrisis potential growth of 1.97%, questioning the BoC’s estimate of this late cycle growth surge.
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