Consumer spending bolsters GDP in Q1

Canada’s economy grew at an annualized rate of 3.7 per cent during the first quarter as consumer spending more than made up for a slide in exports.

“Consumers were the star of the show,” said Brian DePratto, senior economist with TD Economics.

Exports were a weak spot, slipping at an annualized rate of 1.3 per cent. But domestic demand grew at an annualized rate of 4.7 per cent. A big push came from household spending on goods, up 4.3 per cent.

Indeed, Canadians spent so much they triggered a drop in the personal savings rate to 4.3 per cent, down from 5.3 per cent in the prior quarter. “It seemed that Canadians still can’t shake their debt habit, as nominal household expenditures outpaced disposable income growth,” DePratto said.

The result was a slight disappointment relative to a consensus forecast that Canada’s first quarter gross domestic product would top four per cent. The Q1 growth was also just shy of the 3.8 per cent gain that had been forecast by the Bank of Canada.

Yet the data still points to an economy that is rapidly picking up the slack left by the oil price downturn. The Q1 GDP number improves on average growth of 3.45 per cent in the two prior quarters.

“Even with some expected cooldown in the next few months, this still leaves the Canadian economy expanding at an underlying pace well above any other major economy at this point — quickly reversing the underperformance of the Canadian economy after the oil shock,” said Douglas Porter, chief economist with BMO Financial Group.

Statistics Canada said the country’s economy expanded 0.5 per cent in March, which was much better than the 0.3 per cent most economists had expected for the month. Domestic consumption drove growth during the quarter, with exports of goods and services taking a bit of a slide.

“Canada’s economy is humming along at a solid pace, and that has to be the lead for any story on the Q1 GDP numbers,” said Avery Shenfeld, chief economist with CIBC World Markets Inc.

But the International Monetary Fund raised concerns about Canadian business investment, non-energy exports, the housing market and labour productivity.