The Bank of Canada’s latest Business Outlook Survey (BOS) suggests that firms have grown more confident in the outlook, with the future sales balance jumping to a two-year high. It seems to imply that annual GDP growth will accelerate from 1.3% in the first quarter to around 2.3% by the end of the year. (See Chart 1.) The math alone makes that unlikely. While we estimate that GDP expanded by 3.0% annualised in the second quarter, that above-potential growth rate would need to be sustained for two more quarters to push the annual growth rate up to 2.3%. It is instead very likely that growth will drop back in the third quarter. Furthermore, it’s hard to square the BOS with the gloomier messages from the other surveys, including Markit’s manufacturing PMI and Export Development Canada’s confidence index, which both point to very weak growth ahead. At its meeting earlier this month the Bank of Canada cut its GDP growth forecasts, which suggests that it is also taking the message from the BOS with a grain of salt.
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