A growth spurt runs out of gas
Economy ‘off to the races’ early in Q1, but 2.4% lift falls short of forecasts
Canada’s economic performance in the first quarter of this year didn’t really disappoint, it just didn’t impress.
In fact, a strong rebound in export activity — often the laggard sector — may have helped lift Canada’s economy by an annualized 2.4 per cent in the January-to-March period, but that was still below economists’ forecasts for a 2.9-per-cent jump in gross domestic product.
As well, at the tail end of the quarter, March’s GDP had already turned lower, Statistics Canada’s report on Tuesday showed.
“On the face of it, the Canadian economy appeared to be off to the races in the first quarter, posting its strongest result in five quarters,” Leslie Preston, senior economist at TD Economics, said in a research note Tuesday.
“Looking through the details, however, the quarter ran out of steam by March, and the worry is the start-of-year performance may prove a one-trick pony.”
The Canadian economy is still struggling from the impact of the oil-price plunge that began to depress production in mid-2014 and led to low growth last year, and the ups and downs likely aren’t over yet, with expectations running sour on second-quarter growth, but sweetening again on Q3.
“There were downward revisions almost across the board in 2015,” Douglas Porter, chief economist at BMO Capital Markets, said in an interview.
“The (last) year as a whole was shaved. The first quarter (of 2016), as a whole, was about a half a point below what we thought. And the latest monthly (report) was weaker than the consensus expected,” Porter said. “So that’s zero for three. I guess I would have to rate this report as a strike out.”
StatsCan Tuesday said shipments of goods and services rose 1.7 per cent in the three months ending March 31 — the best export performance since that sector’s 3.4-per cent jump at the end of 2014. That followed a decline of 0.4 per cent in the fourth quarter of 2015.
Export gains were led by vehicles and auto parts, along with forestry products and building materials.
But while the volume of exports increased, their values actually declined as prices for energy products eased amid the global collapse in oil prices, the federal data agency said.
Household spending was also higher in the first quarter, StatsCan said, increasing by 0.6 per cent — up slightly from a 0.5-per-cent gain in the previous three months.
Business investment, meanwhile, continued to fall during the first quarter, contracting by 3.7 per cent and adding to the downward trend of the previous five quarters.
The recent wildfires in resources-dependent Alberta have added to the pullback by investors in the energy sector, and many forecasters say growth likely stalled or even reversed in the second quarter of this year.
Nonetheless, analysts are anticipating a healthy rebound in the third quarter — hopefully three per cent or greater — will recoup the previous quarter’s losses.
“Assuming oil production does return as expected, we’re likely looking at quite a solid quarter for Q3,” Porter said. “We think something on the order of four-percent growth in the third quarter is realistic.”
Increasing signs of a stronger U.S. economy should lend support to Canada, given it accounts for most of our two-way trade.
The price of oil also has to regain momentum, and reconstruction of post-fire oilsands facilities need to begin soon to help bolster output in the resources sector.
A recent poll of business leaders, however, showed many still have concerns over the outlook for the economy.
According to a survey for Chartered Professional Accountants of Canada, nearly a third of respondents said they were still pessimistic about how the economy will perform in 2016. “The economic picture remains blurred,” said Joy Thomas, president and CEO of CPA Canada.
The Liberal government has committed to spending as much as $120 billion on infrastructure spending over a 10-year period — but initial work will be focused in the first couple of years on upgrading Canada’s aging transportation system. The big construction spree will come after, with new infrastructure projects across the country being the priority.
In the meantime, the Bank of Canada is expected to stay on the sidelines until at least the first half of 2017 — with the aim of helping to spurge spending and growth through record-low interest rates — while the U.S. Federal Reserve has already resumed interest rate hikes as output and employment growth in that country continue to strengthen.
Assuming oil production does return as expected, we’re likely looking at quite a solid quarter for Q3 … something on the order of four per cent …