Canada posts weakest back-to-back quarters of growth since 2015 — but thats not the whole story – Financial Post

Canada posts weakest back-to-back quarters of growth since 2015 — but thats not the whole story - Financial Post
Canadas economy grew at 0.4% pace to start 2019, barely ahead of late 2018 pace
The real gross domestic product reading for the first quarter followed a revised growth number of just 0.3 per cent in the previous quarter, Statistics Canada said Friday in a new report.

It was the slowest two-quarter stretch of growth since an oil-price plunge caused the economy to shrink over the first half of 2015.

Trump said he would slap a five per cent levy on Mexico by June 10, unless it does more to stop migrants from Central America attempting to cross the U.S. border. He warned the percentage will gradually rise "until the Illegal Immigration problem is remedied."

Economists had expected growth at an annualized rate of 0.7 per cent for the first quarter, according to Thomson Reuters Eikon.

The Statistics Canada report said downward pressure on first-quarter growth was driven by weakness in net trade as imports increased 1.9 per cent and export volumes dropped one per cent for their first quarterly decrease since 2017.

She also listed trade disruptions such as Beijings new restrictions on key Canadian agricultural products. A diplomatic conflict has intensified in recent months, leading China to reject shipments of some Canadian goods, including canola.

Canada also saw a substantial contraction of 9.5 per cent in its exports of farm and fishing products as well as a 2.8 per cent drop in crude-oil shipments.

"We know the economy went through a soft patch at the end of 2018 and the beginning of 2019. But the evidence Im reading here … is suggesting that were exiting all of that and rebounding quite nicely into the second quarter."

On the positive side, the agency said overall economic growth was boosted by the highest quarterly level of household spending in two years, following broad-based increases that included strength in auto purchases and audio-visual equipment.

The Bank of Canada has stressed the domestic economic slowdown was temporary — a "detour." It has predicted 1.3 per cent growth in the second quarter and for expansion to pick up its pace throughout the rest of the year.

The economy also saw an 8.7 per cent increase in business investments on equipment and machinery — the biggest jolt in 23 years. The surge was fuelled in part by significant investments in aircraft and other transportation equipment, the report said.

Wilkins, who raised the concern before news broke about Trumps threat against Mexico, warned the highly uncertain international trade environment — including the ongoing U.S.-China trade war — poses a threat for Canada.

Looking ahead, the report’s month-to-month reading for March — the final month of the first quarter — suggested the second quarter could be off to a stronger start. March posted a 0.5 per cent increase compared to a 0.2 per cent contraction in February.

The first-quarter reading Friday was slightly higher than the Bank of Canada’s prediction of 0.3 per cent.

Looking ahead, the reports month-to-month reading for March suggested strength headed into the second quarter. March posted a 0.5 per cent increase compared with a 0.2 per cent contraction in February.

On Thursday, Carolyn Wilkins, the central bank’s senior deputy governor, said the recent economic slowdown was temporary. She said growth has already been accelerating in the second quarter — which the Bank of Canada has predicted will post 1.3 per cent growth.

The economy expanded at an annualized pace of just 0.4 per cent in the first quarter, slightly above a revised reading of 0.3 per cent in the final months of 2018, Statistics Canada said Friday.

From there, Wilkins said Canada’s economic expansion should pick up its pace throughout the rest of 2019.

First-quarter growth was held back by weak trade data. Imports increased 1.9 per cent and export volumes dropped one per cent for their first quarterly decrease since 2017, the report said.

Even with the expected domestic improvement, she underlined risks to the outlook. She warned the highly uncertain international trade environment — including the ongoing U.S.-China trade war — poses a threat for Canada.

But bigger, widening concerns around global trade — including U.S. President Donald Trumps new threat to impose tariffs on all Mexican imports — could derail Canadas domestic progress.

Wilkins also listed trade disruptions such as Beijing’s new restrictions on some Canadian agricultural products. A diplomatic conflict has intensified in recent months, leading China to reject shipments of some key Canadian goods, including canola.

On the positive side, the strongest quarter of household spending in two years boosted growth. The increase included healthy numbers for purchases of vehicles and audio-visual equipment.

The central bank is also monitoring the possibility of a trade feud between the U.S. and the European Union. U.S. President Donald Trump has threatened to apply tariffs on autos from the EU.

The central bank, she said, is also monitoring the possibility of a trade feud between the U.S. and the European Union. Trump has threatened to apply tariffs on autos from the EU.

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Canada's economy expanded at an annualized pace of just 0.4 per cent in the first three months of the year, giving the country its weakest back-to-back quarters of growth since 2015.

Yet outside of the trade sector the report was strong, with both consumption and business spending making big comebacks. Non-residential investment jumped 13.5 per cent on an annualized basis, the biggest gain since 2010, while spending by households rose at the fastest pace in almost two years. The quarter also ended with a bang, with gross domestic product jumping 0.5 per cent in March, the biggest gain in 10 months.

The real gross domestic product reading for the first quarter followed a revised growth number of just 0.3 per cent in the previous quarter, Statistics Canada said Friday in a new report.

In fact, industry specific data released Friday suggest much of the weakness in the first quarter was confined to energy — because of curtailed oil production in Alberta — and construction. The mining and oil and gas sector was down 4.1 per cent in the first quarter, the largest drop since 2016. Construction recorded a 0.5 percent drop in the three-month period. Sixteen of 20 industries saw higher production.

It was the slowest two-quarter stretch of growth since an oil-price plunge caused the economy to shrink over the first half of 2015.

The data support the Bank of Canada narrative on underlying strength in the economy despite the recent soft patch and that the slowdown will be temporary, with growth set to accelerate in coming months. The final reading for the first quarter was in line with the central banks forecasts, though it came in below economist expectations for annualized growth of 0.7 per cent.

Economists had expected growth at an annualized rate of 0.7 per cent for the first quarter, according to Thomson Reuters Eikon.

The economy grew by just 0.1 per cent in the first quarter, for an annualized pace of 0.4 per cent, Statistics Canada said Friday from Ottawa. Thats little changed from a 0.1 per cent quarterly (0.3 per cent annualized) reading in the final three months of 2018. Output was dragged lower by the biggest drop in exports in a year and a half.

The Statistics Canada report said downward pressure on first-quarter growth was driven by weakness in net trade as imports increased 1.9 per cent and export volumes dropped one per cent for their first quarterly decrease since 2017.

Household spending was up an annualized 3.5 per cent in the quarter, after growing at the slowest pace in almost four years at the end of last year. Business investment was even stronger, after falling for three straight quarters. As a result, domestic demand posted its first gain –3.4 per cent annualized — for the first time in three quarters.

Canada also saw a substantial contraction of 9.5 per cent in its exports of farm and fishing products as well as a 2.8 per cent drop in crude-oil shipments.

Canadas trade sector continues to be a major drag. The decline in the first quarter followed largely flat gains in the previous six months. But even here, trade data reported earlier this month suggested March was much better for exporters — boding well for the second quarter.

On the positive side, the agency said overall economic growth was boosted by the highest quarterly level of household spending in two years, following broad-based increases that included strength in auto purchases and audio-visual equipment.

Canadas economy stalled for a second straight quarter, but the weak overall performance was driven by falling exports and masked strong gains in household spending and investment that suggest the nations expansion is poised to pick up speed.

The economy also saw an 8.7 per cent increase in business investments on equipment and machinery — the biggest jolt in 23 years. The surge was fuelled in part by significant investments in aircraft and other transportation equipment, the report said.

Looking ahead, the report's month-to-month reading for March — the final month of the first quarter — suggested the second quarter could be off to a stronger start. March posted a 0.5 per cent increase compared to a 0.2 per cent contraction in February.

The Bank of Canada forecast growth will accelerate to an annualized 1.3 per cent in the second quarter, and pick up further in the second half of this year, before accelerating back to above 2 per cent growth by 2020.

The first-quarter reading Friday was slightly higher than the Bank of Canada's prediction of 0.3 per cent.

On Thursday, Carolyn Wilkins, the central bank's senior deputy governor, said the recent economic slowdown was temporary. She said growth has already been accelerating in the second quarter — which the Bank of Canada has predicted will post 1.3 per cent growth.

From there, Wilkins said Canada's economic expansion should pick up its pace throughout the rest of 2019.

Even with the expected domestic improvement, she underlined risks to the outlook. She warned the highly uncertain international trade environment — including the ongoing U.S.-China trade war — poses a threat for Canada.

Wilkins also listed trade disruptions such as Beijing's new restrictions on some Canadian agricultural products. A diplomatic conflict has intensified in recent months, leading China to reject shipments of some key Canadian goods, including canola.

The central bank is also monitoring the possibility of a trade feud between the U.S. and the European Union. U.S. President Donald Trump has threatened to apply tariffs on autos from the EU.

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