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Canadian Economy Misses the Mark in Q1

H.S. Borji
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The Canadian economy accelerated slower than forecast in the first quarter, as declining exports and weaker household consumption underscored concerns the economy was starting to lose momentum early in the year.

Canada’s gross domestic product rose at an annual rate of 1.2 percent in the first quarter, Statistics Canada reported today in Ottawa. The official estimate was well short of the consensus, which called for an annualized gain of 1.8 percent.

Real GDP increased 0.3 percent in Q1, following a 0.7 percent advance the previous quarter. This was the smallest increase since the fourth quarter of 2012.

On a monthly basis, real GDP increased 0.1 percent in March.

Household final consumption expenditure (+0.3 percent) advanced at the slowest rate in four quarters and at half the pace of the previous quarter. Expenditures on clothing and footwear declined 1.7 percent, while vehicle purchases decreased 1.1 percent.

Business gross fixed capital formation declined for the third time in five quarters at a rate of 0.9 percent.

New home construction declined 1.5 percent in Q1, and ownership transfer costs plunged 6.4 percent.

Business investment in inventories declined 2.4 percent from the previous quarter, official data showed.

Total exports declined 0.6 percent, despite a strong contribution from energy exports (+3.8 percent). Imports fell 1.9 percent.

The goods-producing sectors advanced 0.6 percent in Q1, while output in the service economy grew only 0.3 percent.

Mining & oil and gas extraction advanced 2.4 percent, led by three consecutive monthly advances. Activity in this sector increased 0.9 percent in March, official data showed.

Output in the utilities sector rose 1.2 percent in the first quarter, likely as a result of higher demand for heating during the colder than normal winter.

Canada’s GDP report comes one day after the Commerce Department said the US economy contracted at an annual rate of 1 percent in the first quarter. That marked the first time the US economy had contracted since the start of 2011. Severe winter weather was largely to blame for the sharp decline in US output. Those same weather patterns hampered economic activity in eastern Canada as well.

The Bank of Canada will weigh the latest GDP report ahead of next week’s rate decision. The BOC, having adopted a neutral policy stance last summer in response to a weakening economy, has stated repeatedly it is prepared to lower the benchmark interest rate should the economy continue to wane. However, with consumer inflation reaching the BOC’s 2 percent target in April, the chances of a rate cut are slim.

The BOC is expected to keep the benchmark lending rate at 1 percent, unchanged since September 2010.

The USDCAD rebounded after the release, advancing 0.18 percent to 1.0857.

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