Thursday, March 24, 2016

Canadian Economic Growth

The Canadian economy slowed substantially in the fourth quarter as growth was pulled down by renewed pressure on energy prices. Canadian real GDP, that is economic output adjusted for inflation, was just 0.8 per cent higher in the fourth quarter following a 2.4 per cent expansion in the third quarter. Economic growth was led by a 1 per cent increase in household consumption, a 1.5 per cent increase in government expenditures and nearly 2 per cent growth in residential construction. The lower Canadian dollar also helped improve Canada's trade balance, as imports declined close to 9 per cent. Real GDP growth for all of 2015 registered just 1.2 per cent.

The Canadian economy was sluggish throughout 2015 and the outlook for growth in 2016 looks to be fairly similar. Absent a major turnaround in oil prices, the national economy will continue to be dragged down by slow growth or even recessions in energy producing provinces. We expect that economic growth in 2016 will be about 1 per cent before picking up in 2017. Slow growth likely means tempered inflation and little ability for households to support higher interest rates. Therefore, we expect the Bank of Canada to remain on the sidelines throughout the year, placing the emphasis on fiscal policy to boost growth.

Copyright BCREA – reprinted with permission

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