Second quarter GDP figures are expected to be strong recession signal

Second quarter GDP figures are expected to be strong. Economy is expected to regain the positive momentum and expectations of analysists are of 4.5% compared to 3.1% registered in the first quarter of the year. The monthly reading for June is also expected to show a negligible improvement, inching to 0.1% from no growth previously.

Consumption was contributive too on the demand side. With the unemployment rate pinned at record lows, retail sales marked six months in the expansion area from March onwards, while the continuous growth in housing starts and home prices reflected increasing appetite for spending despite the rising interest rates and the burdening household debt.

The recession risk has become more real than a statistical probability in the face of Ukrainian war, Covid infections, climate change, have further worsened supply jitters, the BOC may follow Fed’s footsteps and not give up monetary tightening until it sees a sustainable decline in inflation. Policymakers have chosen the second option and will not allow inflation to dominate without a fight, even if the 10-year bond yields have slumped below the 2-year yields recently, flagging that a potential economic downturn is close-by.

The all-important US NFP could steal the show at the end of the week as well, potentially causing larger volatility in dollar/loosie than the Canadian GDP. Meanwhile, traders will look for any OPEC headlines ahead of Monday’s meeting, especially after Saudi Arabia opened the case of sudden output cut.