Are robust gains for the Canadian economy in the offing?

by Ephraim Vecina05 Jun 2019

Substantially stronger household spending and investment might boost the expansion of the Canadian economy in the very near future despite considerable weakness, according to market observers.

Household spending rose by an annualized 3.5% during Q1 2019. Domestic business demand also enjoyed its first gain (3.4% annualized) in three quarters.

Non-residential investment had an even greater 13.5% annualized increase, its largest since 2010.

“When you’re looking at the various components, it’s actually very good results,” Desjardins Financial Group senior economist Benoit Durocher told The Canadian Press. “You have a rebound in domestic demand which is quite good.”

Such upward trajectories can help offset the latest figures from Statistics Canada, which showed that the economy grew by just 0.1% during the first quarter, for an annualized pace of 0.4%. This remained essentially unchanged from the 0.1% reading (0.3% annualized) during Q4 2018.

A massive decline in exports activity – indeed, the largest in approximately a year and a half – was chiefly responsible for the deceleration.

Fortunately, strong consumer and business spending helped offset the weakness. The trends bolster the Bank of Canada governor’s case that the economy is at its core vigorous, and that any slowdown will be short-term.

Stephen Poloz projected that growth will accelerate to an annualized 1.3% during Q2 2019, and gain further speed during the second half of the year. This is expected to settle at above 2% growth by 2020.

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