Canada: GDP growth slows to two-and-a-half year low in Q4 2019
Economic activity softened in the final quarter of last year, with seasonally-adjusted annualized (SAAR) growth decelerating from Q3’s 1.1% expansion (previously reported: +1.3% SAAR) to 0.3% in Q4—meeting both market expectations and those of the Bank of Canada. In annual terms, economic growth softened to 1.6% in 2019 from 2.0% in 2018.
Domestic demand weakened notably in the fourth quarter, rising just 0.7% after increasing 3.1% in the third quarter. Fixed investment contracted 3.1% (Q3: +8.1% SAAR) due to a sharp fall in non-residential investment, while residential investment moderated notably. In contrast, private consumption growth was stable at 2.0% in the fourth quarter, and government consumption growth edged up to 1.3% in Q4 (Q3: +1.2% SAAR).
On the external front, exports of goods and services contracted 5.1% in seasonally-adjusted annualized (SAAR) terms, after declining 0.6% in the third quarter. Meanwhile, imports of goods and services decreased 2.5% in Q4, sharper than the 0.2% drop in the third quarter. As a result, the external sector subtracted 0.8 percentage points from the fourth quarter’s headline growth, more than the 0.2 percentage-points subtraction in the previous quarter.
A series of temporary factors dragged on overall growth in the fourth quarter, including the six-week strike at General Motors in the United States, which weighed on the Canadian automotive manufacturing sector in turn; 3,200 workers going on strike at the Canadian National Railway in November, which hampered the transportation and warehousing sector; and a rupture on the Keystone crude oil pipeline in North Dakota, which weighed on Canadian crude exports to the U.S. These temporary factors are expected to dissipate going forward.
Looking ahead, economic growth is expected to remain relatively stable this year as solid labor dynamics and wage growth should continue to support household spending. Moreover, strong population growth, lower mortgage rates and government measures to support first-time home buyers should buttress residential investment. However, protests over a natural gas pipeline being built over indigenous land in British Columbia will suppress growth in the first quarter of this year. The protests were strategically held at key railway positions, forcing CN Rail to temporarily halt all transportation east of central Ontario, which is expected to hit the transportation and warehousing sector. Moreover, the coronavirus is also expected to weigh on economic activity in the first quarter due to heightened economic uncertainty weighing on business investment.
Commenting on the outlook, Benoit P. Durocher, senior economist at Desjardins, noted:
“While the Canadian economy is still expected to struggle in early 2020, the vast majority of the problems are temporary. A return to normal should eventually lead to a rebound […] later in the year. That said, the climate of uncertainty has undeniably ticked up a notch in recent days, with cases of the coronavirus spreading outside of China. Canada is obviously not immune to these concerns, and financial markets are anticipating a cut in Canadian key interest rates.”