Canada’s corporate profits rise sequentially in Q3 after four straight quarters of decline, likely to grow ahead

Canada’s corporate profits rose in the September quarter after declining for four straight quarters. Profits were up 14 percent sequentially, whereas they continued to decline in year-on-year terms, falling 1.1 percent. The rebound in the sequential figure was driven by a 33 percent rise in finance and insurance industries profits.

A drop in expenses related to property and casualty insurance claims, which increased during the second quarter after the Alberta wildfires, helped bottom line for insurers, noted TD Economics in a research report. Contribution to the overall figure was also made by profits for depository credit intermediation.

Non-financial industries profits rose 6.6 percent in the third quarter. Manufacturing profits rose sharply 27 percent, owing greatly to rise in petroleum and coal products that gained from the resumption of oil production after the wildfires. Meanwhile, the oil and gas extraction industry continued to be affected by a low price environment, as it registered its seventh straight quarterly operating loss.

Given that the adverse effect from the Alberta wildfires has waned, the rebound in corporate profits was anticipated. This is consistent with the improvement in economic activity in the third quarter, which is likely to come in at around 3 percent, stated TD Economics.

Profits are likely to expand in the rest of 2016 as a sound U.S. economy and subdued Canadian dollar help in increasing exports. Usually higher commodity prices in the fourth quarter should also stimulate revenues, added TD Economics.

However, the outlook has been clouded by the outcome of U.S. elections, as pro-growth policies might sustain Canada’s demand and profits; however, increased protectionism in the U.S. might have the opposite impact, according to TD Economics.