Canada: GDP expanded by 0.2% MoM in July

POPULAR ARTICLES

Statistics Canada noted that the Canadian economy expanded by 0.2% in July, coming in above initial estimates of a 0.1% gain and reversing the previous 0.1% monthly contraction.

According to the release: “Goods-producing industries rebounded with a 0.6% increase in July, following three consecutive months of contraction, as all sectors in this grouping expanded. Services-producing industries edged up 0.1% in July, with increases in wholesale trade and real estate and rental and leasing tempered by a decline in retail trade. Overall, 11 of 20 industrial sectors expanded in July”.

Market reaction

The Canadian Dollar (CAD) alternates gains with losses against its American counterpart on Friday, prompting USD/CAD to hover around the 1.3950 zone following the data release.

GDP FAQs

What is GDP and how is it recorded?

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

How does GDP influence currencies?

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

How does higher GDP impact the price of Gold?

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.