The Christmas ice storm that pounded Eastern Canada put a chill on the entire economy. Economists expect to see that the gross domestic product shrank in December, for the first time since last June, when Statistics Canada releases figures for the month and the fourth quarter on Friday.
“It’s pretty clear we’re going to get a contraction in December,” National Bank of Canada senior economist Krishen Rangasamy said. “A big part of that was the weather.”
The storm, which knocked out power to hundreds of thousands of homes, dragged down retail sales, wholesale trade and manufacturing activity in December.
The expected annualized decline in GDP of 0.3 per cent is likely to be an aberration. Economists expect the final three months of the year, and 2014, will look better.
The Bank of Canada, for example, has forecast annual growth of 2.5 per cent for the fourth quarter. The consensus among private-sector economists is 2.7 per cent.
“That’s the best second half in two years,” Bank of Montreal senior economist Benjamin Reitzes said.
“It’s pretty good given where we’ve been. At least, it’s moving in the right direction.”
Canada is still growing roughly one percentage point slower than the United States, in part because the U.S. economy was worse hit during the recession and so has more excess capacity.
And two of Canada’s key economic cylinders still aren’t firing – exports and business investment.
The U.S. recovery is expected to eventually lead to a pick up, first in Canadian exports, and eventually in investment. And that should push GDP higher. “If you see continued strong growth in the U.S. you’ll see an impact on exporters,” Mr. Reitzes said.
Economists expect to see scant evidence of that in the fourth quarter, however, when trade and investment continue to be a drag on growth.
But economists say that if their projections are right for the U.S. economy – near-3-per-cent annual growth this year – Canada will inevitably come along for the ride.
Companies are generally cash-rich, profitable and just looking for opportunities to start expanding. “There is reason to be optimistic for a rebound in 2014,” Mr. Rangasamy said.
“If, as we expect, the U.S. continues to do well this year, we’ll see Canadian businesses invest more. The environment is good to translate those intentions into action.”