After two consecutive quarters of shrinking gross domestic product, the Canadian economy showed signs of life in 2015’s third quarter, Statistics Canada announced December 1.
Real GDP met analysts’ expectations and grew 0.6% in Q3, or 2.3% at an annualized rate. This growth was related in part to a net increase in exports. This momentum was lost by September, however; in that month alone, GDP growth returned to negative territory, shrinking 0.5%.
“Canada’s third quarter came in like a lion and went out like a lamb, hinting that growth will again be flagging in the final trimester of the year,” Avery Shenfeld of CIBC Capital Markets said in a note to investors.
“The 2.3% pace for Q3 as a whole was a welcome relief after a slightly negative first half, but much of the momentum was built off results back in July, and a strong June handoff.”
Growth over the quarter was boosted by a 2.3% increase in exports, including those of consumer goods (up 8.7%), motor vehicles and parts (up 5%) and passenger cars and light trucks (up 6%). Imports declined 0.7%, due in large part to declines in vehicles (7.8%), food, beverage and tobacco (down 7%) and intermediate metal products (down 7.4%).
Household spending increased 0.4% in Q3 after growing 0.6% in the previous quarter. Transport spending increased 2.2% and vehicle purchases rose 3.5%. Consumers also spent more on recreation and culture (up 1.1%) and food and beverage services (up 0.4%), but spending on clothing and footwear declined 0.3%.
September’s decline was strongly driven by poor results in the mining, quarrying and oil and gas extraction sectors, which declined 5.2%. Oil and gas alone fell 5.5%. Even without taking these sectors into account, GDP still fell in the month, however, in part due to a 0.6% drop in manufacturing. Both goods-producing and services-producing industries declined in the month, but some of these losses were offset by growth in the utilities and agriculture and forestry sectors, which both grew 0.3%.
TD Economics’ Brian DePratto said Q3’s growth was helped by a low Canadian dollar and some other factors such as a resumption of production at Windsor’s Chrysler minivan plant. While this left the “short and shallow recession that marked the start of the year firmly in the rearview mirror,” he said, he agrees this level growth is unlikely to happen again in Q4.
“Momentum appears weaker heading into the fourth quarter—even abstracting from the noise in the oil and gas sector—with growth currently tracking close to 0.8%,” DePratto said. “Looking into 2016 and beyond, we continue to expect moderate growth of around 2% per year.
“A continued shifting of Canadian growth drivers is anticipated, with exports taking a more leading role as the housing market takes a breather and investment continues to face the dual headwinds of low oil prices and a weak loonie.”
DePratto said the Bank of Canada will likely hold the overnight rate steady into mid-2017.
In terms of the Canadian dollar, September’s weak showing cancelled out any good news about the quarter overall. The loonie fell almost three-tenths of a cent on the release of the data, reaching about 74.9 cents U.S. as of press time.
