The Citigroup Economic Surprise Index tracks how actual economic data differ from analyst expectations. The index rises when economic data exceed economists’ consensus estimates and falls when data come in below estimates. Starting this summer, the Index has been showing a negative picture for the Canadian economy (see the chart).
Evidently, the current negative trend takes into account the unpleasant surprise that came from Canada’s GDP when it fell by 1.6% in the second quarter of this year. Before the release of the GDP numbers, the Bank of Canada expected that GDP would fall by 1% while the economists' consensus forecast was of a 1.5% drop.
The wildfires in Alberta, which reduced oil and gas production and caused mass evacuations, were a major cause of the GDP’s dismal performance. The fires were not the only reason for the decline. For instance, retail sales in Canada shrank in June as compared to May by 0.1%. Economists expect that the third quarter will bring a rebound from the weak second quarter, which was heavily affected by the one-off event. But it remains to be seen if the fundamental factors have improved enough to support economic growth.
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