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.
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