Canadian economy, GDP not measuring up

The latest news on Canada’s economic growth has been disappointing, revealing a sputtering economy. In spite of the growth rates seen earlier this year in Q2, the September GDP dipped by 0.1% and as for Q3 results, the GDP came in at 1.0%, disappointing the general expectation of 1.5% and the Bank of Canada forecast of 1.6%.

While business development continues to accelerate, net trade and housing rates have not met expectations.

Net trade continues to be the single largest drag on GDP with exports declining by -1.3%, while imports were up 1.6%. The drop is understandable when considering the uneven economic state in the U.S. Canada remains attached to their hip with more than 70% of total Canadian exports going to the U.S. Without a significant pick up in the U.S. economy, there is little that Canada can do outside realigning trade patterns. So, while net trade will improve, it will continue to negatively tug at headline GDP throughout much of 2011.

In terms of housing, the third quarter GDP was hindered by a -1.3% decline in investment in residential construction. Despite the rise in investment in home building in the first half of 2010, the market settled back from its elevated levels.

Personal consumption is running at 0.9%, ahead of overall GDP growth and better than the 0.6% seen in the second quarter. While this does indicate positive movement, along with the fact that Canada experienced a massive pickup in employment rates in the first half of 2010, there has since been an uncomfortable stagnation in the jobs picture in the second half of the year. Heavy debt load at the household level is becoming worrisome and The Bank of Canada may be dragged back in 2011 in an attempt to moderate consumer behavior with higher interest rates.

For September’s GDP specifically, the biggest surprise came in the financial services sector, which at -0.0% disappointed expectations looking which looked for a significant contribution to growth in keeping with industry data out of the real estate sector. Without the offset of a significant pick up in financial services, softness in the goods producing sectors dragged monthly GDP into negative territory.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.