Canada's economy shrank in Q2 due to slowing housing activity and exports

Toronto, ON- August 16 - Construction on restoring the mouth of the Don River continues in the Portlands. Ontario remains in stage three of reopening as COVID-19 cases rise in a fourth wave. in Toronto. August 16, 2021. (Steve Russell/Toronto Star via Getty Images) (Steve Russell via Getty Images)

Canada’s economy expanded in June, following two consecutive monthly declines.

Statistics Canada says GDP expanded 0.7 per cent in June, but an early estimate shows it shrank 0.4 per cent in July.

The July decline came from weakness in manufacturing, construction, and retail trade.

Continued easing of public health restrictions in June led to another strong month for accommodation and food services. The sector was up 15 per cent in June.

Statistics Canada also provided an update on second quarter GDP. The agency says substantial declines in home resale activity and exports pushed GDP down 0.3 per cent.

Ownership transfer costs were down 17 per cent. Although prices have been steady, national home sales have fallen for four straight months.

The decline follows three consecutive quarterly increases after a steep 11.3 per cent fall in the second quarter of 2020 during pandemic-related business shutdowns and travel restrictions.

Statistics Canada says housing investment has become the predominant contributor to economic activities and to capital stock. Residential stock surpassed non-residential.

Also See: The latest real estate news for housing prices, mortgage rates, markets, luxury properties and more at Yahoo Finance Canada.

Average housing investment for the last four quarters was 17 per cent higher than the average over the last five years.

Another key economic driver slowed. Consumer spending was relatively flat (up 0.7 per cent), and outpaced by increases in disposable income (up 2.2 per cent) and savings rate up (14.2 per cent).

The Bank of Canada is on a path of tapering its massive stimulus program called quantitative easing (QE) but some say that plan might get put on hold.

“The unexpected decline in second-quarter GDP all but removes the chance that the Bank of Canada will press on with its tapering plans at its meeting next week, particularly as the preliminary estimate implies that GDP fell in July as well,” said Stephen Brown, senior Canada economist at Capital Economics.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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