Canada’s economy finished 2012 in a state of sluggishness, and that glacial segue into 2013 isn’t generating much hope of strong growth this year.
Gross domestic product grew by an anemic 0.6 per cent, on an annualized basis, in the fourth quarter of 2012, Statistics Canada said Friday, a weak end to a year that saw crucial commodity prices soften, the housing market slow down, and retail spending slip.
In December alone, GDP actually shrank by 0.2 per cent, following small increases in October and November. For 2012 as a whole, growth slowed to 1.8 per cent, the smallest increase since the recession, and the first time in six years that Canada’s full-year numbers were lower than those of the United States.
In 2011 the Canadian economy grew by 2.6 per cent, and in 2010 the rise was an even more robust 3.2 per cent.
While the resource sector and consumer spending helped boost the numbers in the fourth quarter, manufacturing took a hit.
Now, attention will shift to 2013, which looks like it will be a year of slim growth. Several economists say Canada will be lucky to see the economy expand by 1.5 per cent this year, below the Bank of Canada’s current projection of 2 per cent.
Business leaders, too, expect modest growth at best for the rest of this year.
“I think the economy is going to be weak” for the balance of 2013, said David Ross, chief financial officer at Calgary oil field services company Bonnett’s Energy Corp.
He thinks the slack in the economy could last for as long as another two years. “I don’t see any catalysts out there that are cause to change those [slow growth] expectations.”
Matt Campbell, CEO of Rocky Mountain Dealerships Inc., a chain of agriculture and construction equipment dealers based in Calgary, said he thinks the Canadian economy will follow the U.S. in maintaining an extended period of slow growth. While there are some signs of improvement in the U.S., it will not be enough to cause a significant uptick in Canada before the end of 2013, he predicted. The continuing uncertainty in Europe will also weigh on Canada’s economy, Mr. Campbell said.
The weak fourth quarter means the Bank of Canada’s expectation is “already looking offside,” said Douglas Porter, chief economist at BMO Nesbitt Burns. “The question now is how far are people going to cut their forecasts.”
BMO has already trimmed its outlook for the full year’s GDP from 1.7 per cent to 1.5 per cent, and “frankly I have no trouble believing it could come in below that,” Mr. Porter said.
One key indicator that does not bode well for the economy was last Wednesday’s report from Statistics Canada on capital spending intentions for 2013, he said. That survey of private and public sector organizations showed they expect to increase investment on construction, machinery and equipment by just 1.7 per cent in 2013, the smallest boost since 2009.
“Business investment is not going to come riding to the rescue and single-handedly bail out the economy,” Mr. Porter said.
Some economists say the moribund economy will likely prompt the Bank of Canada to reconsider its plans to raise interest rates in the medium term. David Madani of Capital Economics in Toronto thinks the central bank will abandon this “tightening bias” by the spring, but “we’ll get a hint of it next week” in the Bank of Canada’s policy statement Wednesday.
Mr. Madani, who predicts annual GDP growth of just 1 per cent in 2013, said he is particularly concerned about Canada’s softening housing market, and the continuing wide gap between Canadian and world oil prices.
Mr. Porter said what he will be looking at most closely in the next few months, to determine just how Canada will fare in 2013, is the state of employment in the United States. If the job numbers south of the border are good, “then the U.S. recovery can really catch” and that will spill over into Canada. If the U.S. economy ramps up in 2013 it could grow by more than 3 per cent in 2014, and that could help pull Canada back above 2 per cent that year, Mr. .Porter said.
However, it will also be crucial that “Europe doesn’t completely go off the rails,“ he said.