Philip CrossBusiness investment and exports remain weak even after positive fourth quarter in 2016

OTTAWA, March 20, 2017 – Household and government spending helped prop up a recovering-but-still-tepid Canadian economy to close out 2016, writes Munk Senior Fellow Philip Cross in his latest quarterly economic update for the Macdonald-Laurier Institute.

Real GDP increased by 0.6 percent in the fourth quarter after a 0.7 percent gain in the third when recovery began from the wildfires in Alberta. Employment growth also picked up to 0.6 percent, fuelled by growth in the public sector.

The growth helped reinforce a second-half turnaround for the Canadian economy after a weak first half of 2016.

However the transition to spending that will prove more fruitful for the long-term recovery of the Canadian economy remains elusive.

“Canada’s economy continues to be overly reliant on growth being provided by household and government, which remain heavily indebted, rather than business investment and exports”, writes Cross.

To read the full commentary, titled “Weak Business Investment, Household and Public Debt Constrain Canada’s Economic Recovery”, click here.

The outlook for business investment remains clouded, as the annual Statistics Canada survey of investment intentions found firms plan to cut capital spending by 5.6 percent. That is a fourth straight decline.

The planned drop for 2017 does not primarily reflect weakness in the energy sector. Instead, investment was pulled down by widespread weakness in most other industries, with cuts planned in 10 of the 13 major industry groups.

Mining, manufacturing, transportation (excluding government investments in urban transit), retailing, and banking all plan important declines. The only gains were in utilities, real estate, and telecommunications.

Investment in manufacturing is a continued source of weakness, with intentions falling 4.6 percent in 2017 to $15.2 billion. That’s a major reason why business investment continues to be poor.

Exports, meanwhile, have risen less than one per cent in the past year.

The housing market in some parts of the country continue to be strong. Prices for existing homes in the Toronto area rose by about 30 percent in the year ending in February. Even in Vancouver, where various measures have cooled demand by 42 percent from a year ago, prices only fell by 3 percent. Households continued to borrow over $40 billion (at annual rates) from the rest of the economy.

Cross’ quarterly economic updates are meant to be a companion item to his monthly Leading Economic Indicator updates.

The Indicator is available on Bloomberg and is intended for journalists and analysts who follow the macro performance of the Canadian economy. Quarterly economic analyses by Cross, based on the results of the indicator, will appear on the MLI website.

To see past Leading Economic Indicators, click here.


Philip Cross is a Munk Senior Fellow with the Macdonald-Laurier Institute. He previously served as the Chief Economic Analyst for Statistics Canada, part of a 36-year career with the agency.

The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.

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