Canada’s GDP Growth Dependent on Real Estate and Construction Sector

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Canada’s overheated property market is driving the nation’s growth as the real estate and construction sector now contributes half of the country’s GDP growth rate, according to the Canadian government’s statistical office.

Latest GDP growth data from Statistics Canada showed the nation’s GDP growth rate in May increased 1.37 percent from the same period last year. Half of the growth was driven by the real estate and construction sector.

Canada’s entire GDP came in at $1.97 trillion in May after growth increases of $4.52 billion for the month.

The overheated real estate rental and leasing sector contributed to 24.24 percent of the growth and the construction sector more than 27 percent. Combined both sectors are the biggest contributor to the Canadian economy and responsible for over 51 percent of the country’s economic growth in May, according to Statistics Canada.

Many analysts feared Canada’s property bubble would collapse as housing prices soared while average incomes remained flat.

The Canadian government instituted measures to cool property prices and managed to cool the market a bit in July, according to the International Monetary Fund (IMF).

“Following a period of escalating prices, Canada’s housing market is cooling,” wrote the IMF in a new report.

“Measures designed to strengthen financial stability such as more stringent tests of borrowers’ ability to repay their loans, along with higher interest rates, combined to make mortgage financing more expensive,” added the IMF.

 

However, the IMF warned that the overheated housing market and the Canada’s reliance on the sector for GDP growth could upend the economy into chaos.

“Persistent housing market imbalances remain a key domestic risk factor,” concluded the IMF.

“A sharp reversal in housing market prices, particularly if accompanied by a rise in unemployment and a collapse in people’s consumption, could spark additional risks to financial stability and growth,” it added.

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