Hey there, time traveller!
This article was published 1/7/2014 (845 days ago), so information in it may no longer be current.
Hope for acceleration of Canada's economic growth was deferred once again this week when Statistics Canada found that the economy grew by just 0.1 per cent in April, the same rate as in March. The good news was that Canada had not yet been drawn into the economic contraction the United States suffered in the first three months of this year.
The bad news was that the growth the government had been counting on still didn't happen.
The Bank of Canada in its April Monetary Policy Report maintained its earlier forecast that gross domestic product would grow at an annual rate of 2.5 per cent in the second quarter. An almighty growth spurt would be needed in May and June to bring that about since April's growth was far short of that pace.
This week's GDP report showed Canada's car dealers and food and clothing retailers did well in April, but few other bright spots were found. Mining of coal and metals declined from the preceding month along with oil and gas production. House-building also declined. The July Monetary Policy Report, due for publication July 16, should bring the bank's second-quarter growth estimate down closer to reality.
The rate of economic growth reflects and affects the economic fortunes of all Canadians. The federal government, in particular, relies on economic expansion to swell government coffers since the tax system skims a little off the top of most transactions. Reported federal revenue has been buoyant lately on account of growth in 2013, when GDP rose by 2.9 per cent. Federal revenue in March was also swollen by a $600-million capital gain achieved by the sale of Macdonald House, a Canadian High Commission property in London. Since economic growth is lagging so far this year, the government may have to sell a great deal more high-priced real estate to keep its revenue growing.
In the U.S., the Commerce Department's Bureau of Economic Analysis last week produced the shocking news the U.S. economy shrank at an annual rate of 2.9 per cent in the first three months of this year -- a sharp turnaround from growth at a rate of 2.6 per cent in the last three months of 2013. The bureau had been estimating that the U.S. economy shrank at a rate of 1.0 per cent in the first quarter. With new information about low personal-consumption expenditures and declining exports, the bureau last week took its first-quarter GDP estimate sharply lower.
Canada's economic performance is heavily dependent on American businesses that are the main customers for Canadian exports. Severe winter weather was the conventional explanation offered in the spring, when U.S. data suggested a small U.S. contraction in the first quarter. The newly announced decline at an annual rate of 2.9 per cent, however, suggested something more than a spell of bad weather may be afoot -- something like a decline in confidence by U.S. businesses and consumers.
There is little Canada can do about spurring the U.S. growth that might translate into Canadian growth. The Canadian barge essentially has to drift with the tides until the U.S. tugboat powers up its engine and the tow-line snaps tight.
Canadians, especially those who write the government's official forecasts, should keep their expectations in check and keep a close eye on what the crew of the tugboat is actually doing. The latest news from Washington suggests that neither tugboat nor barge is going very far this year.
Finance Minister Joe Oliver is already patting himself on the back for the government's success in bringing the federal deficit down to a manageable level and dreaming of surpluses to come as the economy grows. He should not spend the money yet.