MNI DATA ANALYSIS:1Q GDP Disappoints But Matches BOC Forecast>

By Yali N'Diaye

     OTTAWA (MNI) - Canadian economic growth slowed to an annualized 

pace of 1.3% in the first quarter, the weakest performance since the 

second quarter of 2016, as both household consumption and exports 

slowed, while the housing cool-down also took its toll, data from 

Statistics Canada showed Thursday. 

     Analysts in a MNI survey had forecast a 2.0% increase, and the Bank 

of Canada itself said Wednesday in its policy statement that growth in 

the first quarter appeared "to have been a little stronger than 

projected" in April (+1.3%). 

     That being said, the quarter ended on a stronger note, as March GDP 

by industry showed a stronger-than-expected 0.3% gain, while analysts 

had expected a 0.2% expansion, handing off a good start to the current 

quarter. 

     The goods sector led the monthly growth with a 0.6% gain, while 

services accelerated to 0.2% from 0.1% the previous month. 

     --SLOWER HOUSEHOLD SPENDING 

     Households were more reluctant to open their wallets in the first 

quarter as spending growth slowed to 0.3%, the slower pace in three 

years, extending the decelerating trend that started in the third 

quarter of 2017. 

     As a result, household spending contribution to the 1.3% annualized 

GDP growth (1.346% unrounded), at 0.6 percentage points, was the 

smallest since the first quarter 2015. 

     Goods consumption was flat while services rose 0.5% over the 

quarter. 

     The slowdown in household consumption is expected by the BOC, with 

the hope it will be accompanied by a decline in their indebtedness. 

     Still, the central bank said Wednesday in its policy statement that 

it expects "consumption will continue to contribute importantly to 

growth in 2018." 

     With a 0.8% gain in disposable income, the saving rate edged down 

to 4.4%. 

     --HOUSING TAKES ITS TOLL 

     On the housing front, residential investment fell 1.9% in the first 

quarter, the largest drop since the first quarter 2009, trimming the 

annualized GDP growth by 0.6 percentage points. 

     The decrease was to be expected due to the negative impact of 

tighter macro prudential rules in place since January on housing 

activity. 

     While the BOC acknowledged such adjustments, "going forward, solid 

labor income growth supports the expectation that housing activity will 

pick up." 

--SLOWER BUSINESS INVESTMENT

     Strengthening business investment is also part of the BOC's growth 

rotation scenario, and on that front Thursday's data were disappointing 

on the surface. 

     Business investment rose 0.9% in the first quarter, after a 2.3% 

gain in the fourth quarter. 

     The contribution to growth declined to 0.9 percentage points from 

2.1 the previous quarter. 

     However, non-residential investment growth, including machinery and 

equipment, picked up to 2.6% from 1.9%, lifting the contribution to 1.0 

point from 0.7 points. 

     "Data on imports of machinery and equipment suggest continued 

recovery in investment," the BOC said Wednesday. 

     --WEAKER EXPORTS 

     On the external front, while the BOC anticipates a lower 

contribution from consumer spending in its growth rotation scenario, 

exports were expected to pick up, and become a stronger engine of 

growth. 

     However, export growth slowed to 0.4% in the first quarter after 

rising 1.0% the previous quarter, bringing down exports' contribution to 

0.5 percentage points from 1.2 points. 

     In addition, the slowdown was led by the non-energy sector, on 

which the BOC is counting. 

     Non-energy exports fell 1.0% while energy exports were up 5.7% in 

the first quarter. 

--MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

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