Canadian real GDP growth rebounds in Q3, but unlikely to grow at significant pace in 2017

Canada’s real GDP growth rebounded in the third quarter. The economy expanded at an annual pace of 3.5 percent, recovering largely from the previous quarter’s revised decline of 1.3 percent. The nominal GDP grew 6.1 percent, its strongest growth since the start of 2013.

The economic growth was driven by exports, which rose at an annualized pace of 8.9 percent on the back of 9.6 percent growth in goods shipments. This greatly shows a resumption of energy product exports after the Fort McMurray wildfires. Meanwhile, imports came in at 3.3 percent.

Consumer spending continued to stay health at 2.6 percent as purchases of nondurable goods and services led the way. Moreover, business investment gave a mixed performance in the September quarter. Non-residential structures investment was up considerably by 15.7 percent; however, the rise was almost because of a single piece of imported equipment for the Hebron project in Newfoundland and Labrador.

Machinery and equipment investment dropped 12.2 percent with declines recorded in most major subcategories. Intellectual property investment also dropped in the quarter by 17 percent, driven by a straight decline in mineral exploration/evaluation. Government spending also declined, which possibly shows the conclusion of wildfire-related spending, noted TD Economics in a research report.

Meanwhile, monthly GDP for September came in above expectations with a 0.3 percent sequential growth. Goods-producing industries led the way, rising 1.1 percent, assisted by a fourth consecutive monthly gains in mining, quarrying, and oil and gas extraction industries and healthy manufacturing activity.

The resumption of Canada’s economic activity after the May wildfires delivered the most rapid pace of economic growth since the end of 2014, said TD Economics. Canada has regained the ground lost in the second quarter. However, beneath the surface, there is an economy that continues to struggle to find new growth sources.

Most of the gain in the quarterly as well as in monthly figures could be attributed to one-offs. Business investment, which had been expected to ‘bottom out’, instead continued with its fall that would have been worse absent a one-off module delivery for the Hebron offshore project.

“Indeed, the 0.3 percent monthly number notwithstanding, momentum heading into the end of the year appears soft as GDP excluding energy gained just 0.1 percent in September. Only a marginal improvement in the rate of growth is expected in 2017”, stated TD Economics.

For the Canadian central bank, it is unlikely that the GDP report would move the needle. The economic growth came in slightly above their projections, and the weak underlying momentum heading into the end of the year seems largely consistent with the central bank’s October forecasts that see current economic slack being absorbed only in mid-2018, according to TD Economics.

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