TORONTO — Canadian gross domestic product jumped 3.7 percent at an annualized rate during the first quarter to build on 2.7 percent and 4.2 percent increases in the third and fourth quarters of 2016, RBC Economics reported.
Household spending remained strong with consumer spending up 4.3 percent and residential investment up 15.7 percent. But, unlike earlier quarters, business investment was also a significant support to first quarter growth.
Monthly GDP rose a stronger-than-expected 0.5 percent in March, pointing to strong momentum through the end of the quarter, said Nathan Janzen, RBC senior economist.
“Strong economic growth in Canada is not really new,” he said. “The 3.7 percent GDP jump in first quarter marked a third consecutive gain above our estimate of the economy’s ‘potential’ long-run growth rate and a third consecutive out-performance relative to the United States.
“Perhaps the most important takeaway from the Q1 numbers was a strong gain in business investment,” said Janzen. “The 10.3 percent annualized quarterly increase was the largest in almost five years and followed two years of persistent declines. Business investment has been a missing ingredient from earlier improvements which were driven largely by stronger household expenditures.
“First quarter growth was not significantly different than the Bank of Canada’s 3.8 percent forecast and there are still plenty of risks to the outlook, particularly from potential U.S. trade disruptions,” he explained. “Growing evidence that business investment has begun to rise again, however, means those concerns will have to be balanced against firmer current economic conditions that argue that ultra-low levels of interest rates may otherwise no longer be needed.
“We expect the bank to maintain a very cautious tone in the near-term, reflecting uncertainties about the U.S. and the lack of evidence that consumer price inflation is strengthening, but assume that further economic growth will eventually prompt the central bank to begin hiking rates at a gradual pace by mid-2018,” said Janzen.
SOURCE: RBC Economics press release