Canada: GDP growth pulls ahead in Q3, economy snaps out of recession
December 1, 2015
Canada’s economy returned to growth in the third quarter, as the non-energy sector picked up speed and helped to lift the economy out the recession that has characterized the first half of 2015. Strong export growth, combined with a contraction in imports helped GDP to grow at a seasonally adjusted annualized rate (SAAR) of 2.3%, a notable improvement from the 0.3% contraction registered in Q2. The figure was also broadly in line with market analysts, who had expected a 2.4% increase. The positive reading should be approached with caution, however, as recent monthly GDP data indicate a contraction in September, which suggests that the economy exited Q3 with a whimper after starting with a bang.
The Canadian dollar has depreciated almost 15% year-to-date against the U.S. dollar on the back of the Central Bank easing monetary policy and strong demand for the greenback, and falling prices for Canadian exports. This deterioration appears to have been well received by Canadian businesses as exports of goods and services shot up 9.4% in Q3 (Q2: +1.9% SAAR). Breaking this figure down reveals that exported goods grew far more compared to services, with the strongest gains in the motor vehicle and parts sector. Such industries have also been supported by a pickup in demand from the U.S., Canada’s largest trading partner. The slowdown in Chinese demand also appears to be apparent in the data, as Statistics Canada reported a contraction in exports of mineral products as well as industrial input products. Imports fell 2.9% in Q3, following a 1.9% contraction in Q2, which helped the external sector’s contribution to growth reach plus 4.0 percentage points in Q3, the strongest contribution since Q3 2011.
At home, domestic demand remained anemic and contractions were recorded in both government spending and fixed investment. The 2.8% fall in fixed investment casts a shadow over the quarterly result, although it is a milder contraction than the 6.0% drop registered in Q3. Residential investment was the only component to add a positive contribution to growth. The contraction in investment is troubling as it has negative forward-looking implications for Canada’s economy. Much of the contraction is related to the sharp decrease in prices for resources, particularly those related to the energy sector. Government consumption also contracted in Q3, falling 1.6% which contrasted Q2’s 1.7% expansion.
Author: Robert Hill, Economist