Canadian economy grows weaker than expected in Q4 2018

The Canadian economic growth came in weaker than anticipated in the fourth quarter of 2018. The GDP grew just 0.4 percent quarter-on-quarter in the December quarter, as compared with market expectations of a growth of 1 percent. Nominal GDP dropped 2.7 percent as falling commodity prices weighed down export prices. For the 2018 as a whole, the Canadian economy grew 1.8 percent, owing partially to downward revisions to the figures in the first half of 2018.

The final domestic demand shrank 1.5 percent, the second straight contraction. There was little in the way of redeeming factors. Non-residential investment dropped for a third consecutive quarter on broad based softness throughout both structures and machinery and equipment spending. Residential investment also dropped in the month, falling 14.7 percent, as the fall in resales was joined by lower construction and renovation activity. Intellectual property products was one marked bright spot in investment picture, rising 16.2 percent. Business spending on mineral exploration rebounded, as did research and development, while software spending continued to be strong.

Meanwhile, household consumption slowed to 0.7 percent, as spending on durable goods dropped 2 percent. Government spending dropped on the quarter, mainly due to considerably swing in spending on aircraft.

On the trade side, it was the big unknown as the U.S. government shutdown kept some of the monthly data out of analysts’ hands, noted TD Economics in a research report. Net exports contributed positively to growth; however, this was because imports dropped more that exports. In nominal terms, it is the converse. Nominal exports dropped 15 percent due to falling energy prices. Nominal imports dropped more modestly by 2.4 percent.

Meanwhile, employee compensation rose just 4.8 percent, while the capital share of income dropped as the gross operating surplus dropped 19.8 percent due mostly to the oil and gas sector. The combination of incomes and spending left the household savings rate up slightly at 1.1 percent.

On a monthly basis, the Canadian economic activity dropped 0.1 percent in December, although there was some comfort in seeing that the declines were not widespread. The fall can be due to the goods sector, which recorded a fall of 0.7 percent. Utilities output fell 2 percent, thanks to mild December weather, while construction output dropped 0.9 percent.

“Things are probably going to get worse before they get better. The monthly GDP data suggests little momentum heading into 2019, and the impact from mandatory oil curtailment in Alberta will deepen within the Q1 GDP data, shaving around a point off of Q1 growth”, said TD Economics.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bearish at -107.345, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 118.431 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex