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Canadian Economic Growth Disappoints

Mar 02, 2018

The Conference Board of Canada’s Chief Economist Craig Alexander offers the following perspectives/insights on Canadian Economic Growth Q4 2017:


“Canada posted 3.0 per cent growth in 2017, the strongest in the G7. However, the pace of expansion lost momentum in the second half of the year and entered 2018 on a soft note. This cooling in Canadian growth comes at a time when there are a host of downside risks to the domestic economy from abroad, particularly U.S. trade and tax policy,”
—Craig Alexander, Senior Vice-President and Chief Economist, The Conference Board of Canada.


  • Canada experienced strong economic growth in 2017 for the year as a whole, but the pace of expansion slowed considerably in the second half of the year. Real GDP grew at an annualized pace of 1.7 per cent in the fourth quarter of 2017, a result below market expectations for a gain of 2.0 per cent and well below the 2.5 per cent the Bank of Canada forecast in the January Monetary Policy Report. The modest growth in the final three months of the year came after a 1.5 per cent increase in the third quarter.
  • This highlights the fact that the strength in early 2017 reflected a rebound from the commodity-shock induced weakness in 2015 and 2016. It was also the product of an unsustainable spending binge by consumers. Once these effects abated, the pace of growth geared down to a sub-2 per cent pace.
  • The economic growth deceleration contrasts with the jobs boom in the second half of last year that lowered the unemployment rate to the lowest level since the mid-1970s. Looking forward, the pace of economic growth will likely struggle to achieve 2 per cent and the pace of job creation is expected to be modest. Meanwhile, the Canadian economy faces future downside risks from U.S. trade protectionism, difficult NAFTA trade talks, and competitive challenges from lower U.S. corporate tax rates. These factors are likely to make the Bank of Canada cautious in delivering further rate hikes.
  • Consumer spending growth slowed in the fourth quarter with an annualized increase of 2.1 per cent, which is still healthy. The moderation was anticipated, as the consumer outlays were exceedingly strong in prior quarters.
  • It is encouraging that business investment delivered a strong increase of 9.5 per cent in the fourth quarter, with broad-based gains in machinery and equipment, residential and non-residential investment. However, the details raise questions about the sustainability of the gains. For example, some of the strength in real estate activity reflected increased resale activity in advance of new mortgage regulations. Meanwhile, machinery and equipment rose primarily because of outlays on aircraft and transportation equipment, areas that tend to be very volatile.
  • Real exports increased by 3.0 per cent, but this fell well short of a 6.3 per cent increase in imports.
  • In terms of the monthly real GDP, the Canadian economy grew by 0.1 per cent in December. Goods-producing industries recorded a 0.1 per cent decline in output, while services-producing industries posted a slim increase of 0.1 per cent.