Free Trial

MNI DATA NALYSIS: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 
[TOPICS: MACDS$,M$C$$$]

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.