09:03 AM EDT, 09/03/2024 (MT Newswires) -- Real gross domestic product (GDP) in Canada Friday managed to come in what seems to have been a "sturdy" 2.1% annual rate

in Q2, said Rosenberg Research.

That beat the consensus forecast of +1.8% and the Bank of Canada (BoC) estimate of +1.5%. But the good news ended there, stated Rosenberg Research.

Here's why, according to Rosenberg:

-- First, the headline was skewed by the heavy hand of the government which expanded at a hefty 6.7% annualized pace. Strip this out, and private-sector GDP was very sluggish at a mere 0.5% annual rate (with a flattish consumer and contraction in housing largely offsetting a rare bounce in business expenditures).

-- Second, the y/y real GDP growth trend, which smooths out the quarterly wiggles in the data, is running at just 0.9% -- down from 1.3% a year ago and 5.3% two years ago. So, the downward trajectory is unmistakable and this also reveals a situation where demand growth is running at half the pace of estimated aggregate supply (potential growth) -- hence the widening in the disinflationary output gap.

-- Third, with Canada's population expanding at a 3.5% y/y pace, even a government-induced 2.1% doesn't stop the decay in real per capita GDP -- negative now in each of the past five quarters. The 2.4% y/y contraction trajectory in real GDP per capita spending says it all and helps explain why intermittent rallies in the Canadian dollar (CAD or loonie) leave Rosemberg less than impressed or enthused.

- Fourth, the incoming monthly data show that real GDP actually flattened in June (slightly negative to the second decimal) -- business sector activity fell 0.1% m/m and Statistics Canada's "flash" estimate for July also is as flat as a beavertail. The "build in" for Q3 real growth is 0% on the nose -- which explains why unemployment is on a one-way ticket north.

-- Fifth, the monthly breakdown of industry GDP (for June) was very disturbing. Industrial production (IP) sagged 0.5% m/m in the worst showing of the year. The 1.5% slide in the manufacturing sector was the steepest decline in more than three years. Construction spending

dropped 0.6% and is down sequentially in each of the past three months. Only a 1.0% spike in the resource sector prevented this report on the products side from being a total disaster -- all in, goods producers posted a 0.4% decline in activity while the service sector practically stagnated.

Real retail activity was little changed (+0.1%) after a 0.8% drubbing in May. Between that and construction, the interest-sensitive parts of the economy are really struggling, and this surely cannot be lost on Canada's central bank, pointed out Rosenberg.

The setback in manufacturing alongside the 0.3% m/m falloff in transportation/warehousing (the biggest decline since December 2022) -- both very export-sensitive items -- tells Rosenberg that what the economy needs is a softer currency, not a stronger

one.