PREVIEW-Canada Q2 GDP seen +2.5 pct annualized

* What: Statistics Canada releases June and Q2 GDP

* When: Tuesday, Aug. 31, at 8:30 a.m. (1230 GMT)

REUTERS FORECAST:

(ECONCA: )

Q2 Q1 Forecast

2010 2010 range

GDP Q/Q Annualized +2.5 +6.1 +2.0 pct to

+3.2 pct

June May

GDP by industry M/M +0.2 +0.1 0.0 pct to

+0.4 pct

For individual forecasts see: [ECI/CA]

FACTORS TO WATCH:

Recovery: After roaring out of the gates in the first
quarter, second-quarter economic growth is likely to be
decidedly slower at less than half the pace. Some of the data
has been patchy in the quarter, but has started to show signs
that business investment is picking up after the consumer drew
the economy out of recession.

Trade: For an export-oriented country, recent trade data
has indicated disappointing exports. But, on the plus side,
import figures have been firmer as businesses invested in
machinery and equipment, and nonresidential construction is on
the rise.

Business investment: This has been an element analysts have
been watching as federal stimulus measures are set to come to
an end and governments have been urging the private sector to
fill the gap.

Consumer: Residential home construction and sales have
slowed in recent months, and are likely to contribute less to
overall growth going forward. Consumer spending has also
softened in the wake of higher interest rates.

June reading: The monthly print will set the tone for the
third-quarter handoff. Security spending during the Group of 20
summit in Ontario could be an extra boost, while manufacturing
and nonresidential building permits have risen.

MARKET REACTION:

Interest rate expectations may be sealed by the GDP data,
the last critical piece of information to consider before the
Bank of Canada’s Sept. 8 policy decision.

Canada’s primary securities dealers forecast the central
bank will raise interest rates for a third time this year in
September by 25 basis points, but are mixed about the balance
of the year. [CA/POLL]

But market pricing is almost evenly split, with a slight
lean towards keeping the key rate at the current 0.75 percent
next month, as measured by a Reuters calculation of yields on
overnight index swaps on Friday. (BOCWATCH: )

Earlier this month, expectations for a quarter-point rate
hike were at less than 30 percent as successive soft indicators
deflated pricing, but have perked up since U.S. Federal Reserve
Chairman Ben Bernanke said the U.S. central bank is prepared to
take further steps if needed to spur the stumbling U.S.
economy. [ID:nN27259859]

The U.S. second-quarter estimate of quarterly growth was
also not as bad as feared, improving chances for Canada’s
economy, which is highly linked to the United States.

The Canadian dollar (CAD=D4: ) is likely to firm, while bond
prices may fall, particularly on interest-rate sensitive
short-dated maturities, if the quarterly growth cements views
that the Bank of Canada will raise rates in September.

($1=$1.06 Canadian)
(Reporting by Ka Yan Ng; editing by Rob Wilson)

PREVIEW-Canada Q2 GDP seen +2.5 pct annualized