GROWTH SPURT
Canada’s GDP outpaces U.S. in third quarter.
•Canada’s economy turned the corner from recession to growth in the third quarter of this year, but there are still troubling signs ahead as the energy sector continues to pull down overall output.
Gross domestic product grew by 2.3 per cent between July and September, on an annualized basis, after two consecutive quarterly declines, Statistics Canada said Tuesday.
The rebound was helped in part by a surprisingly big jump in exports — offsetting still-weak business investment.
Private- sector economists had forecast annualized growth of 2.4 per cent in the most recent three-month period. In first and second quarters of this year, GDP declined by a revised 0.7 and 0.3 per cent, respectively, a slight improvement from previous estimates by the federal data agency.
The third- quarter strength was tempered by a 0.5- per- cent decline in September, “primarily as a result of the declines in mining, quarrying, and oil and gas extraction and — to a much lesser extent — manufacturing,” the agency said.
Even so, the Canadian economy performed at a better pace in the quarter than the United States, which posted an annualized increase in Q3 GDP of 2.1 per cent.
“It’s ( comparing) apples to apples. But, if we look at the whole string of apples over the past year, their apples are much more impressive,” Douglas Porter, chief economist at BMO Capital Markets, said in an interview.
“The U. S. has had decent growth of more than two per cent, and we’ve struggled to even grow by one per cent over the past year.”
While the third- quarter marked a resumption of growth in Canada following a technical recession — described as two straight quarterly contractions — in the first half of 2015, the September reading was not an encouraging sign for the fourth quarter of this year. That slowdown could give pause to any near- term increase in interest rates by the Bank of Canada, which on Wednesday will announce a decision on its key borrowing level — currently at 0.5 per cent.
“The third quarter came in like a lion but went out like a lamb, as strong numbers early on gave way to a drop i n September,” Avery Shenfeld, chief economist at CIBC World Markets, said in a note to investors.
Most analysts, however, are not expecting any rate change by central bank Governor Stephen Poloz and his governing council until sometime next year, depending on the ongoing impact of the collapse in oil prices on the domestic economy and the path of recovery in the U. S., Canada’s largest trading partner.
Policy-makers previously cut their benchmark rate twice this year in response to the economic fallout from the oil-price drop that slashed about 50 per cent off crude oil’s previous trading levels.
In Tuesday’s report, Statistics Canada said overall gains in the third quarter were led by exports — up by an annualized 9.4 per cent — while imports fell 2.9 per cent. At the same time, household spending grew by 1.8 per cent.
Business investment, however, declined by three per cent in the third quarter — but was still an improvement on the previous quarters this year.
David Madani, Canada economist at Capital Economics, said the September number “suggests that even our below- consensus forecast of one- per- cent GDP growth in the fourth quarter might be too high.”
“Business i nvestment i s tumbling and will likely fall further in response to the worsening oil- price slump,” Madani said in a note to investors.
The new Liberal government is expecting GDP growth of 1.2 per cent in 2015, down from two per cent forecast in the Conservatives’ April 21 budget document. Next year, output is forecast to increase by two per cent.