Trudeau gets an upside economic surprise before elections

Canada‘s economy grew much more than expected in the second quarter, official data showed on Friday, providing a boost to Prime Minister Justin Trudeau as he prepares to fight a tough re-election campaign in October.

The national statistical agency, Statistics Canada, said the economy expanded at an annualised rate of 3.7 percent in the second quarter, higher than the 2.3 percent the Bank of Canada had predicted in July and the 3.0 percent estimated by analysts in a Reuters poll.

It was the fastest pace of growth since the 4.4 percent reported in the second quarter of 2017.

Polls show Trudeau’s Liberals face a tight election race against the Conservatives, who have promised to make the economy and affordability a cornerstone of their campaign.

Trudeau came to power in 2015 promising to run modest budget deficits over four years as Ottawa invested more in the economy and boosted social spending.

But the shortfalls have been much larger than expected and the Liberals will not say when the budget will return to balance. The Conservatives accuse the Liberals of reckless spending.

Finance Minister Bill Morneau said the growth data showed the government’s policies were paying off.

“Investing in Canadians works. Today’s economic statistics confirm Canada’s strong record of growth under our government,” he said on Twitter. “By making it easier for businesses to invest and putting more money in the pockets of hard-working families, we’re moving Canada forward.”

The Bank of Canada is to release its next interest rate decision on September 4 and most analysts think it will not move.

“Bank of Canada should be pleased with the numbers,” said Sal Guatieri, a senior economist with BMO capital markets, adding that the data “will likely keep the Bank of Canada on sidelines next week”.

The Canadian dollar strengthened on the news, rising to 1.3247 Canadian dollars, or 75.49 US cents.

Canada’s second-quarter growth also outpaced that of the United States, its largest trading partner, which had an increase of two percent in the same quarter, Statscan said.

Exports of goods jumped 3.7 percent in the second quarter, while exports of services rose 1.1 percent. Business investment, though, declined 1.6 percent, while consumer spending slowed to 0.1 percent.

Economists cautioned that the country’s latest growth figures were unlikely to ease the central bank’s worries, particularly those tied to continued global trade tensions, given much of Canada’s second-quarter growth came from higher exports.

“There will be concern about how long that can last given escalated US-China trade tensions, Brexit uncertainty, and slower global growth,” said Nathan Janzen, senior economist at Royal Bank of Canada.

June’s gross domestic product rose 0.2 percent, the same as in May, marking the fourth consecutive month of increases, Statscan said, because of higher growth in the service-producing industries.