Canada’s economy grows more than expected, lifting loonie higher

OTTAWA – It’s safe to say many Canadians were glad to see the back of 2015.

There was a mini-recession, fuelled with a caving oil sector and pushed deeper by weak business investment, along with sagging exports and an equally worrying decline in imports – all resulting in aggressive cuts in the country’s long-stagnant key lending rate.

That also kept downward pressure around the dollar, weakening the buying power Canadians, while failing to spur demand outside the country for our products.  

“It was a forgettable year overall,” admits Douglas Porter, chief economist at BMO Capital Markets.

But things might be looking up for the economy, when so slightly, with the year ending along with some a whoop, as opposed to a whimper.

On Tuesday, Statistics Canada delivered the full complement from the country’s 2015 economic data – for that final month, the ultimate quarter and, finally, the entire year.

Gross domestic product rose by 1.2 per cent this past year – matching the financial institution of Canada’s forecasts – compared to a gain of two.5 per cent in 2014, while the economy edged up by an annualized 0.8 percent between October and December, down from 2.4 percent in the third quarter.

“Maybe most impressive was the monthly gain in December,” Porter said, which was “quite solid and does provide a slightly better tone once we go to 2016.”

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For December alone, GDP grew 0.2 percent – a mild gain, however it was likely a strong enough hand-off to this year’s first quarter, which the Bank of Canada has predicted should grow by one percent.

The Canadian dollar climbed by about 0.7 cents to more than US74.60 cents following the better-than-expected GDP report.

“Mauled by bears and left for dead just a few weeks ago, the Canadian dollar has become back with a vengeance,” said NBF Economics and Strategy in a research note.

“The loonie’s Revenant-like performance was helped by a softening greenback, but markets also began to wonder if or not the Bank of Canada really must cut rates of interest given that upcoming fiscal stimulus will provide a boost to the economy.”

Despite a sluggish recovery within the second half of this past year, the Canadian economy still were able to claw back from the recession in the first two quarters of 2015 – when GDP contracted by 0.9 per cent and 0.4 percent consecutively as the collapse of global oil prices started to squeeze output – hitting resources-dependent Alberta and Newfoundland and Labrador the hardest.

Most economists are forecasting GDP growth of 0.5 per cent in the first quarter of 2016.

Mauled by bears and left for dead just a few weeks ago, the Canadian dollar is now back with a vengeance.

“The worst is over,” Shaun Osborne, chief foreign-exchange strategist in Toronto at Bank of Nova Scotia, told Bloomberg News.

“If we get fiscal stimulus within the budget that’s meaningful and contributes to growth momentum fairly significantly and fairly quickly, that decreases the chance of Bank of Canada rate cuts this season, and in all likelihood means the following move in rates in Canada must be higher, though not until 2017.”



The central bank taken care of immediately the power crisis by twice cutting its key interest rate by 25 basis points in 2015 – first in January nevertheless in July – taking the trendsetting lending level to 0.5 percent. Governor Stephen Poloz and his policy council will announce its next rate decision March 9.

However, the financial institution is not likely to create a move ahead rates before the federal government’s 2016-17 finances are tabled on March 22, a monetary blueprint that will detail the Liberal’s proposed multi-billion-dollar economic plan which will include paying for infrastructure and regulations for middle-class Canadians.

More likely, Poloz holds off coming to a adjustment to monetary policy before the April 16 rate decision, which will be accompanied by the bank’s forward-looking quarterly Monetary Policy Report – allowing policymakers to gauge the possible impact of Ottawa’s spending plans.

Meanwhile, in Tuesday’s GDP report, Statistics Canada said business investment fell 3.3 per cent in the fourth quarter of 2015, while household expenditures rose 0.2 per cent between October and December – down in the 0.5-per-cent increase in the 3rd quarter.

Canadian exports were down 0.6 percent in the final 3 months of the year, an impressive reverse from the gain of 2.6 per cent within the third quarter. Imports were also lower in your fourth quarter, falling 2.3 percent after a 0.6-per-cent decline within the third quarter.

“I think we’ll apt to be close to one percent again in the first quarter,” said BMO’s Porter.

“(But) let’s imagine oil prices make their way back over the next year and the U.S. economy stays on the right track and the Canadian dollar stays relatively low – and we get a bit of support from fiscal policy – I can tell growth returning to over two per cent next year.”

Financial Post

gisfeld@nationalpost.com

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