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Canadian Economy Sprints Out of the Starting Blocks in First Quarter

May 31, 2017

The Conference Board of Canada’s Chief Economist Craig Alexander offers the following perspectives/insights:

Quote

“The Canadian economy sprinted out of the starting blocks in early 2017. The pace of growth was strong and broadly based. Economic growth will moderate in the remainder of the year, but a healthy performance is in store. While we still see the Bank of Canada as being on hold, the case for an eventual tightening in monetary policy is getting stronger,”
—Craig Alexander, Senior Vice-President and Chief Economist, The Conference Board of Canada.

Insights

  • The Canadian economy kicked off 2017 on a strong note, with real GDP rising at an annualized pace of 3.7 percent. This was a bit below financial market expectations for growth of slightly above 4 percent, but this does not tarnish the robust performance.
  • Consumers lead the way, with personal expenditure surging 4.3 percent. Spending on big ticket items, such as vehicle purchases, was particularly noteworthy.
  • A welcome piece of news was strength in business investment, which rose 10.3 percent fuelled by gains in outlays on machinery and equipment, intellectual property and mineral exploration. The Conference Board of Canada has been flagging the risks from weak business investment for some time. A particular concern was that machinery and equipment investment has been rising slower than depreciation in recent years. This hampers future growth prospects. The key issue is whether business investment has turned a corner or whether the Q1 result is only temporary. So, the increase in business investment has been long awaited and we hope for further gains.
  • Exports were largely flat in the quarter. Imports rose by 13.7 percent, which is consistent with the strong increase in Canadian domestic demand, the rise in business investment and additions to inventories.
  • The monthly real GDP reading for March rose 0.5 percent, supported by broad based gains in goods and services. The pace of economic growth in Q1 cannot be maintained, but the strong gain in real GDP in March likely sets up the economy for a solid, but more moderate, gain in Q2.
  • The performance of the Canadian economy is broadly in line with the Bank of Canada’s projections. Although the pace of growth is rapidly eating up the available economic slack, the risks of inflation remain low. The Conference Board continues to believe the first tightening of monetary policy will come early next year, but if the Canadian economy surprises on the upside in the coming months there could be a case for rate hikes before the end of the year.

 


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Photo of Craig Alexander Craig Alexander
Senior Vice-President and Chief Economist

Craig Alexander brings over 19 years of experience in the private sector as an economic and financial forecaster to the position of Senior Vice President and Chief Economist. He oversees the Board’s macro-economic outlook products, custom economic and tourism research.

Follow Craig on Twitter

@CraigA_Eco


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