Advertisement

Reality check: Canada’s economic growth lower than it looks

Excluding trade figures that were skewed due to a one-time event, consumer shopping was, once again, the main driver of economic growth in Canada.
Excluding trade figures that were skewed due to a one-time event, consumer shopping was, once again, the main driver of economic growth in Canada. Chris Young/CP

The Canadian economy grew by a whopping 2.6 per cent during the last three months of 2016 — or did it?

The figure, released by Statistics Canada this morning, initially sent the Canadian dollar rallying before investors realized that, well, things aren’t as good as they look.

READ MORE: Canadian economy grows 2.6 per cent, beats expectations in the last stretch of 2016

The fourth-quarter growth figure beat economist’s expectations by 0.6 of a percentage point — a large amount, when you’re looking at GDP numbers.

But Bank of Nova Scotia economist Derek Holt was quick to call that “a fake beat.”

“Canada’s economy was nowhere nearly as strong in Q4 as the headline beat suggests. In fact, it was quite weak,” Holt wrote in a research note.

Story continues below advertisement

WATCH: Bank of Canada warns of dangers of Trump’s protectionist policies

Bank of Canada warns of dangers of Trump’s protectionist policies
Bank of Canada warns of dangers of Trump’s protectionist policies

Part of what skewed the GDP numbers higher was a plunge in imports, which made it look like Canada’s net trade balance was better than it was. The 13.5 per cent drop in imports actually reflected things going back to normal after a single one-time large import — the purchase of a module for the Hebron oil project in Newfoundland and Labrador — had pushed up imports in the third quarter.

The “artificial” import figure alone added over a full percentage point to Canada’s overall growth figure, according to CIBC economist Nick Exarhos.

READ MORE: Finance Minister Bill Morneau meets with US counterpart in Washington

When you look at the rest of the economy, the picture is rather grim, wrote Scotia’s Holt. There is “zero evidence that the sources of growth are rotating toward investment and exports,” he noted.

The true drivers of Canada’s fourth-quarter were, as usual, consumer spending and the housing market.

Non-residential business investment, on the other hand,  considered a more sustainable source of long-term growth, plummeted 17.4 per cent.

Other bank analysts sounded more positive notes, highlighting that disposable incomes and the personal saving rate posted solid growth. This may indicate that growth in consumer spending wasn’t entirely driven by a debt binge.

Story continues below advertisement

READ MORE: Record debt: Canadian households sink deeper and deeper into the red

The bottom line: Canadians likely don’t have to worry about an interest rate hike just yet

There’s another positive takeaway for Canadians: The mixed fourth-quarter results are unlikely to significantly affect the Bank of Canada’s stance on interest rates, according to most research notes viewed by Global News.

READ MORE: Despite higher inflation, Bank of Canada leaves rates untouched

Had economic growth been as strong as the GDP figure suggested, it might have prompted the bank to revise upward its economic outlook, drawing closer the time for an interest rate hike. That would have, in turn, put pressure on mortgage rates.

For now, though, Canadian homeowners can keep having sweet dreams.