Canada’s economy managed to eke out a bit of growth in the final quarter of 2015, beating the expectations of analysts and the Bank of Canada.
Real GDP grew 0.2% in Q4, Statistics Canada announced March 1. At an annualized rate, the economy grew 0.8% at an annualized rate, beating analysts’ expectations of 0.3%. Overall in 2015, average growth was 1.2%, which met expectations.
“Upside surprises for Canada have been few and far between over the past year, so this modest beat is certainly welcome,” said BMO Financial Group’s Douglas Porter. “And it is a slightly better tone to end 2015, a mostly forgettable year for the Canadian economy.
“While also a bit better than Bank of Canada expectations for the quarter, we don’t believe this changes the channel on the primary story – the economy is still grinding along at an underlying growth rate of about 1%, until further notice.”
Sherry Cooper, chief economist for Dominion Lending Centres, points out that although growth in Q4 was stronger than expected, there are still concerns that the country’s economy is underperforming.
Cooper points out that one reason for the advance in GDP was a 2.3% drop in imports—the biggest decline in six years—as a low loonie caused import prices to jump and kept Canadians from traveling abroad as much as in the past.
“This is hardly something to cheer about, although it does take pressure off the Bank of Canada to cut interest rates further,” she said.
Meanwhile, exports decreased after starting the year on a more positive note.
“Exports of goods decreased at a 2.0% annual rate, mostly because of the decline in sales of aircraft and other transportation equipment and parts: think Bombardier,” Cooper said.
Business investment in non-residential structures, machinery and equipment across the country was down 12.4% at an annualized rate in Q4, mostly due to deep cuts in the resource sector. On the upside, household expenditure increased 1% (annualized) and business investment in residential structures increased 1.8%.
Overall, 2015 was a “dismal” year for the country’s economy, Cooper said, pointing out that this low growth was not strong enough to lead to job creation. The 1.2% increase was half of the growth seen in 2014.
TD Economics’ Brian DePratto said the outlook is optimistic, however.
“The first quarter of this year is unlikely to be a ‘barn burner’ for the economy, but solid momentum heading into the year suggests that we are likely to see an uptick in the pace of growth, as domestic demand appears unlikely to rebound heading into 2016,” DePratto said.
He went on to say growth will be driven by manufacturing exports in 2016 as the low loonie finally translates into increased foreign demand.
Cooper and DePratto both said the Bank of Canada is unlikely to cut the overnight rate further at its next rate announcement, which is taking place March 9.
As of press time, the Canadian dollar was trading at 74.5 cents U.S., an increase of more than half a cent.
@EmmaHampelBIV
