The chickens are coming home to roost for the Canadian economy — and the Liberal government’s economic policies — after Statistics Canada on Friday reported GDP unexpectedly contracted in the second quarter..According to the latest data, the economy shrank at an annualized rate of 0.2%, reversing a 2.6% gain in the first quarter. That too, was revised down from initial estimates of 3.1%. .The drop took economists by surprise. Many had been expecting 1.2% growth in the quarter, while the Bank of Canada had been projecting 1.5%..The drop was led by housing, as new investment fell 2.1% for the fifth consecutive quarter. New housing starts were off 8.2% while renovation spending fell 4.3%..Analysts blamed the drop on higher mortgage costs, making the case for a pause on future rate hikes. The Bank of Canada will announce on Sept. 6 whether it will pause or raise its overnight rate and the bank's governor, Tiff Macklem, will be in Calgary the following day to present his follow-up economic update.. Bank of Canada Tiff Macklem .In a commentary from RBC Economics, the softer economic numbers suggest “headwinds” from earlier rate hikes are taking hold despite the fact inflation remains above the central bank’s 2% target..The August job numbers, released next Friday, will arrive too late to influence the bank's interest rate decision. But they’ll help determine how long this next expected pause in rate hikes will last..“We expect the Bank of Canada to move back to the sidelines Wednesday, foregoing another interest rate hike. But it’ll keep its options open in case more increases are necessary down the road,” said Nathan Jansen, RBC’s assistant chief economist..Meanwhile, Conservative leader Pierre Poilievre called the housing numbers in particular a damning indictment of the Liberal’s economic policies..“BREAKING: StatsCan reveals homebuilding DOWN 8.2% last quarter as Trudeau-Singh worsen housing shortage,” he tweeted on Twitter ("X")..The pain is particularly acute in British Columbia, which has some of the highest housing prices in Canada..In a letter to Bank of Canada governor Macklem, Premier David Eby urged him not to consider raising interest rates further, writing: “People in BC are hurting.”.In it, he noted the International Monetary Fund believes Canada runs the highest risk among major economies of mortgage defaults and defaults, potentially sparking a broader housing crash..“The danger of further unnecessary rate increases is not just to homeowners with mortgages as they renew or lock in at higher rates. Renters, young people, seniors, families, and small business owners, burdened with car loan payments or lines of credit who were just starting to find their feet after COVID, are being pushed to the brink,” he said.
