Source: www.reedconstructiondata.com, February 22, 2010]
As the statistical picture of the Canadian economy’s performance in the final quarter of 2009 becomes clearer, it appears that growth in the quarter will be stronger than most analysts expected just a few months ago.
Based on the information that is currently available, Canada’s economy in the fourth quarter continued to benefit from the sustained expansion of the U.S. economy.
Despite the relative appreciation of the Canadian dollar versus the U.S. dollar in the fourth quarter, Canada’s merchandise exports increased by an estimated 13.5% quarter over quarter (at annual rates), following a 17.8% increase in the third quarter.
This solid growth of external demand complemented sustained growth of domestic demand. It is estimated to have grown at close to the same rate in Q4 (4.7% quarter over quarter at annual rates) as it did in the third quarter.
This combination of strong external and domestic demand likely caused fourth quarter growth to be in the range of 4.0% to 4.5% quarter over quarter (at annual rates), well above the 3.3% projected by the Bank of Canada in the mid-January Monetary Policy Update.
It is likely that this stronger pace of growth in the final quarter of 2009 will carry over into 2010. Moreover, given the positive signals coming from a number of forward-looking indicators, growth should continue to be relatively strong over the next several quarters.
In its Winter Business Outlook Survey, the Bank of Canada reported that 50% of the firms it surveyed expect growth to pick up over the next 12 months, and 40% expect to hire additional staff.
According to the Conference Board, consumer confidence soared in January to a 23-month high, 40.4 points above its January 2009 level.
Finally, in December the Statistics Canada Leading Indicator increased by 1.5%, its largest month-over-month per cent increase since February 1982.
These indicators, plus a steady improvement in the near- term prospects for the U.S., suggest that growth in Canada in 2010 will be in the range of 3.0% to 3.5%, compared to -2.5% in 2009.
Gross domestic product (GDP) – Canada vs U.S.
Data sources: Statistics Canada and U.S. Bureau of Economic Analysis.
Chart: Reed Construction Data – CanaData.