Canadian GDP pulled back slightly by 0.2% (annualized) in the second quarter, after a 2.6% gain in the first quarter.

The mild contraction was mainly due to lower residential investment (-8.2%), and a much slower pace of consumer spending (+0.2%). These factors more than offset stronger business investment (+10.3%).

Signs of higher borrowing costs weighing on the country’s economy are evident, with the impacts spreading from the housing sector to the consumer. Second quarter GDP came in much lower than the 1.5% increase expected by the Bank of Canada in their July Monetary Policy Report.

In the monthly industry data, real GDP dipped 0.2% in June, with 12 of the 20 sub-sectors posting declines. Statistics Canada points to the drag from wildfires, particularly in the mining sector. Oil and gas extraction rebounded by 1.1% in June after the wildfires contributed to a 3.4% contraction in May. Statistics Canada’s advance reading for July shows real GDP largely unchanged.

The soft second quarter GDP report, along with recent cooling in the labour market, makes it most likely in our view that the Bank of Canada moves to the sidelines tomorrow at their next scheduled rate announcement.

Answer to the previous trivia question: Established in 1982, the Higher Ground Cafe in Calgary is Alberta’s oldest coffee shop.

Today’s trivia question: Going back to 1970, in what year did Canada post its largest decline in annual real GDP? Bonus points: when was the second largest decline?