Canada’s economy posts tepid growth as virus uncertainty casts doubt over outlook

The Canadian economy nearly ground to a halt in the final quarter of 2019, but showed flickers of momentum that could be short-lived as the world contends with the coronavirus outbreak.

Real gross domestic product inched up by an annualized 0.3 per cent, Statistics Canada said Friday, matching what the Bank of Canada and private-sector economists had expected. For the year, real GDP rose by 1.6 per cent, marking a slowdown from 2018’s 2-per-cent pace.

A weak quarter was hardly surprising given a slew of temporary disruptions, including the Canadian National Railway Co. strike, poor weather in parts of the country and pipeline shutdowns. In particular, business investment and exports were notable drags, while household spending was strong enough to keep the quarter in positive territory.

December, however, brought some relief, with GDP climbing 0.3 per cent from the previous month and delivering a stronger end to 2019 than many had expected.

“Normally, we would see that as a good hand-off for [the first quarter], but that goes out the window given the new issues with global growth and yet more rail disruptions in February,” said Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, in a client note.

On top of that, the COVID-19 outbreak has spread to more than 50 countries, forcing some companies to cut back on operations and leading to considerable losses on equity markets.

As such, an increasing number is betting the Bank of Canada will be forced to cut its policy rate, perhaps as soon as next week.

“The key questions facing the Bank of Canada ahead of next week’s rate decision are likely the same ones facing all analysts right now: how long will the coronavirus disruption last, and how deep will that disruption be?” said Brian DePratto, senior economist at Toronto-Dominion Bank, in a research note.

“It is too early to expect the Bank to have these answers, so a rate cut on Wednesday seems unlikely (though not impossible). Instead, given the list of risks facing the Canadian economy, expect Governor [Stephen] Poloz to open the door even wider to monetary easing this spring.”

Friday’s report highlighted some persistent issues for the economy. For the quarter, exports dropped by an annualized 5.1 per cent, with weakness in both goods and services, while business investment continues to flip-flop between gains and losses. Consumer spending, however, expanded at a 2-per-cent annualized rate, bucking recent data that pointed to a beleaguered consumer.

Source link “