E Canadian Economy Grew Modestly In Q1;Exports A Major Drag On Growth

The Canadian economy has recently been growing very slowly, and real GDP barely expanded at a 0.4% annual rate in Q1. In contrast, the American economy expanded at a robust 3.2% pace in the first quarter.

In fact, considering that Canada’s economy grew at an even slower 0.3% pace in the fourth quarter, the economy barely avoided a recession over the last two quarters. Fortunately, recent signs suggest that the economy may be on a path for a modest rebound.

Nominal GDP bounced back at a more respectable 5% annual rate in the first quarter, following a 3.1% drop in the fourth quarter of 2018. Pre-tax corporate profits in the first quarter also rose 7.2% following a massive 69.4% decline in the previous quarter.

Canada’s tepid GDP expansion in the first quarter was led by a 3.5% annual increase in consumer spending and a 39.5% rise in business investment in machinery and equipment. Offsetting these increases were terrible trade numbers -- a 4.1% decline in exports and a 7.7% increase in imports - as well as a 6.1% decline in residential spending.

There was a huge $17.7 billion expansion in inventories in the first quarter, and cannabis stocks contributed to a $1.7 billion increase in farm inventories.

We are also highlighting monthly GDP data for March, which are not expressed at annual rates of change. The monthly GDP data essentially emphasize industry trends and do not reflect the direct impact of foreign trade.

In March there was a substantial 0.5% expansion in GDP, which translates into a much stronger 2% annual rate of growth. There were gains in 16 of the 20 industrial sectors and the March surge in GDP followed two earlier months where output was essentially flat.

Canada’s goods-producing industries expanded 0.7% in March, and the service industries generated 0.4% growth, their strongest monthly gains since May 2018.

The manufacturing sector also increased by 0.9% in March, and both durable and non-durable manufacturing expanded.

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