Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

(Rafal Gerszak/Rafal Gerszak for The Globe and Mail)
(Rafal Gerszak/Rafal Gerszak for The Globe and Mail)

Economy Lab

Canada chips away at the output gap Add to ...

Probably the most striking feature of Friday’s national accounts release is not the headline number -- annualized growth of 1.8 per cent in the fourth quarter of 2011 -- so much as the upward revision in GDP estimates for the first three quarters of last year. Last November’s estimate for the third quarter was revised up my almost two-tenths of a percentage point, and the estimated annualized growth rate was revised from 3.5 to 4.2 per cent.

More related to this story



The Canadian recovery was knocked off track during the debt psychodramas in the U.S. and Europe during the middle part of 2011: GDP fell in the second quarter and the Bank of Canada’s estimate for the output gap widened. But these revised GDP number suggest that this derailment was short-lived: the output gap in the third quarter was approximately the same as it had been in the first quarter of 2011.



After the disappointing monthly GDP numbers we saw in October and November, December’s 0.4 per cent growth was good news for the fourth quarter as a whole. Although GDP growth of 1.8 per cent is far from spectacular, it is still enough to chip away at the remaining output gap.



Even as the output gap closes, it is very unlikely that the Bank of Canada will move to raise interest rates soon. The federal government -- possibly joined by the Ontario provincial government -- is expected to adopt a contractionary fiscal policy stance in the next few months. Keeping interest rates low will be part of attenuating the effects of a reduction in government spending.







For more of Stephen Gordon's recent posts, click here.



Follow Economy Lab on twitter

Follow on Twitter: @stephenfgordon

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular