Canada’s economic growth slows slightly in Q1 2018, likely to grow modestly above potential for whole year

The Canadian economy expanded 1.3 percent on a sequential basis in the first quarter, slightly slower than the prior quarter’s growth of 1.7 percent. Price gains came in fairly modest, sending nominal GDP to 2.6 percent. Non-residential business investment aided in sending output higher. Structures investment grew soundly by 6.3 percent, but even more impressive was an 18.1 percent rise in investment in machinery and equipment, assisted by a sharp rise in business spending on vehicles.

On the contrary, consumer spending, although positive, came in below expectations, rising just 1.1 percent. Spending on goods was effectively flat, while service consumption came in at 2.1 percent. Meanwhile, housing and trade were on the negative side of the ledger. Residential investment dropped 7.2 percent owing entirely to a 44 percent fall in ownership transfer costs. On the contrary, new construction and renovation activity both performed well, rising 5 percent and 5.9 percent respectively. Exports grew 1.7 percent, aided by a 6.8 percent gain in services, while imports rose 4.9 percent.

While output disappointed, incomes managed to hold up. The aggregate measure of employee compensation rose 4 percent. Household disposable income rose 3.7 percent, not quite enough to keep the revised savings rate flat, as it dropped by one tick to 4.4 percent.

Monthly GDP for March rose 0.3 percent sequentially, with 15 of 20 major industries recording growth and strong gains in both the goods-producing and services-producing sectors of the economy. Today’s report shows that Canada’s economy still has some gas left.

“We remain confident that economic growth will remain modestly above potential for 2018 as a whole. Accordingly, conditions will stay supportive of a Bank of Canada hike at its next meeting in July”, stated TD Economics in a research report. 

At 18:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bearish at -166.526, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -33.7952. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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