Canada: Consumption and housing restrained 2018 GDP growth – NBF

The Canadian economy expanded 0.4% in the fourth quarter, below expectations. National Bank of Canada analyst, Krishen Rangasamy, explains that domestic demand was a major drag on growth as consumption stalled (worst performance since 2012), while government spending, business investment and residential investment all subtracted from growth.  

Key Quotes:

“Canada’s GDP expanded at an annualized pace of just 0.4% in the fourth quarter last year, well below the 1% print expected by consensus. Adding to the bad news was a downward revision to the second quarter (from 2.9% to 2.6%), which means 2018 real GDP growth was a mere 1.8% (the weakest since 2016) That compares with a 3% print in 2017.”

“The last time we saw such an ugly Canadian GDP print was 2016Q2 when output contracted amid slumping commodity prices. While back then sinking exports were the culprit, this time weakness was pervasive with even domestic demand (all sub-categories) taking a dive.”

“The damage on the headline GDP print could have been even worse were it not for contributions from inventories. The latter, however, coupled with the weak handoff from December, suggests Q1 growth may also be weak.”

“Unlike housing and consumption, investment has potential to accelerate in 2019 based on Statistics Canada’s latest annual report on planned capital expenditures. Whether or not those intentions translate to actual investment will, however, depend on prospects for exports which we believe will improve thanks in part to new trade deals and a Canadian dollar that is now at its most competitive level in years in real effective terms.”