Gloomy Outlook After a Winning Economic Report


Ukrainian Credit Union.

The first quarter of 2017 showed very strong economic results for Canada. The country’s GDP grew 3.7% and outpaced the economies of all developed countries. Practically all the GDP components rose, including consumption and business investment.

But the quarterly report left some areas of concern for the Canadian economy. Economic activity relied too heavily on two factors, household consumption and housing prices. The housing market, whose Toronto segment has recently cooled off somewhat, seems to have become a risk factor for Canada. According to the CBC, economist Frances Donald at Manulife Asset Management thinks that the housing market is more likely to provide a headwind for the economy in the second half of 2017 than act as an ongoing pillar of strength. Household consumption, which relies heavily on household income growth, which has been anemic, is volatile and can swing either way.

But what about a very important GDP component which shows the country’s business sector investment dynamic? Capital expenditures by businesses in Canada had been dropping sharply for the past two years, reflecting the decline of investment in the oil and gas sector, before it bounced back in the first quarter of 2017. This decline occurred on the back of ailing Canadian exports, which have been flat for seven quarters despite the persisting weakness of the Canadian dollar. The growth of business capital expenditures by 12.2% in the first quarter is a first sign of improvement, after a particularly sharp dive in late 2016, and it will take some time for confidence about the future of the Canadian manufacturing to manifest itself.