Canada Q3 GDP – weak domestic economy bar residential investment and exports..

Real GDP increased by 0.9% in the third quarter, or an annualised 3.8%.  At first glance this would appear to be a healthy clip.

Real personal consumption expenditure weakened, contributing just 21.6% of the increase in real GDP in comparison to its weight in real GDP of 63.2%.   Nominal personal expenditure comprised 30% of the increase in GDP and compared to a weight of 57%: why the difference between the two – real GDP measures changes in volume and suggests that the volume of GDP consumed by personal expenditure has increased more over the years due to the price deflator being less for this component of GDP – note that the Canadian dollar fell significantly from 2003 onwards.

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Real government expenditure (including its contribution to gross fixed capital investment, but excluding inventories) contributed negatively to real growth in the quarter but positively to nominal GDP (12%) – government expenditure as a % of real and nominal GDP is some 25%. 

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Real business investment in non residential structures and equipment fell by 15%, as a % of the increase in real GDP, well below its component share of GDP of 20%: real investment in machinery and equipment fell 32%.  Nominal figures contributed 4% to nominal GDP relative to a 12% component share, with investment in nominal machinery and equipment falling by 8% of the increase in GDP.  Again the higher volume component of the real GDP figures looks to be due to the appreciation in the loonie reducing the cost of imports and capital goods.

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Real investment in residential structures rose by 18.2% of the increase in GDP, well above its share of GDP of 6.04%.   Nominal investment in this category represented 7% of GDP and rose during the quarter by 19% of the increase in GDP.

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The major contribution to real growth was a rise in exports and a decline in imports, equivalent to 134% of the change in real GDP over the month.  Final demand rose by 0.2% excluding the impact of exports.  In terms of nominal GDP, the net increase in exports was some 91% of nominal GDP. 

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The quarterly increase in the contribution of net real exports was the third largest post war increase.   This is significant.

Also of potential significance is the apparent relationship between nominal residential structure investment and nominal net exports as a % of GDP.

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Overall, underlying domestic economic growth is weak and dependent on global demand just as a) the consumer seems to be reining in expenditure, amidst high debt levels, and b) as government deficit reduction measures bite into final demand.   Canada is exposed to weakness in global growth and high levels of debt.

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