Disappointing economic growth in fourth quarter

By: Matthew Stewart

The Conference Board of Canada’s Director of Economics Matthew Stewart offers the following insights on today’s Gross Domestic Product data:

Growth in the Canadian economy slowed to a muted 0.1 per cent in the fourth quarter. The sluggish performance was the result of a decline in business investment and exports, which were only partially offset by continued strength in consumer spending. Today’s release shows that economic growth has slowed to a crawl. Although we expect conditions to improve significantly in the second half of 2020, Canada’s overall performance this year is likely to remain similar to last year—largely disappointing.

  • Real GDP growth slowed to 0.1 per cent in the fourth quarter of 2019. This is a disappointing result and confirms that economic growth has indeed softened heading into 2020.
  • Exports declined by 1.3 per cent in the fourth quarter. The decline was caused by falling exports of agricultural products, crude oil and passenger cars and light trucks.
  • The worst news surrounded business investment, which fell 1.6 per cent in the fourth quarter. We had hoped to see a turnaround in business investment due to some easing in trade tensions. Business investment has been a source of weakness in the Canadian economy since commodity prices crashed in 2014.
  • Residential investment grew by just 0.3 per cent in the fourth quarter. This is a much slower pace than recorded earlier in the year. While construction of single dwellings fell, this was somewhat offset by increased construction of multiple-dwelling units and higher ownership transfer costs, the result of strong resale activity. Renovation construction also fell. Renovation construction has been on a downward trend over the last year, likely related to households’ efforts to improve their balance sheets.
  • The only thing that kept real GDP from declining in the fourth quarter was solid growth in household spending. Household spending increased by a robust 0.5 per cent, although spending on motor vehicles declined.
  • For the year, Canadian GDP advanced by just 1.6 per cent compared to 2.3 per cent in the United States. Business investment fell slightly compared to 2018, which will do nothing to improve Canada’s lagging export performance. Exports advanced by a sluggish 1.2 per cent in 2019. This means that GDP continued to be largely driven by consumer and government spending.
  • This morning’s GDP report was largely disappointing. Real GDP came in weaker than we had projected in our December forecast. Furthermore, we expect that growth will remain soft early this year as the impacts of the rail blockade and COVID-19 impact economic growth.