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Economy in Brief

Canada GDP Slows in Q3: Temporary Easing -- or Not?
by Carol Stone November 30, 2006

The Canadian economy slowed in Q3, according to the national accounts array published today by Statistics Canada. GDP grew only 1.7% at an annual rate from Q2, slower than Q2's 2.0% and also less than the 2.0% widely expected by Canadian economists. It was the weakest performance since Q2 2003, when there was a decline of 1.3%.

The slowdown was not a result of weaker consumer spending; this actually strengthened to 4.2% growth from 3.8% in Q2 and was 4.1% ahead of a year ago, compared with year-on-year growth of 2.5% for total GDP. And private nonresidential fixed investment, often the generator of business cycles, also picked up, growing at a 7.0% pace compared with 5.4% in Q2.Further, net exports, while deteriorating, did so less than in Q2, as that deficit inched outward by only C$0.8 billion, following a sharp widening in Q2 of C$12.2 billion.

So the slowing in this one quarter was due primarily to a marked deceleration in government consumption and to further declines in housing investment. The swing in the government accounts related to the quinquennial census that was taken in mid-May. This created a bulge in government spending from Q4 2005 through Q2 2006. A quick look at the second graph shows the periodic slowdowns following these 5-year censuses, previously taken in 1996 and 2001.

Residential construction deepened its decline that set in during Q2 after the huge seasonally adjusted advance during last winter, which as we in the US know, was quite mild. Residential investment in Canada jumped 14.2% (annualized) in Q1 and has almost exactly offset that in Q2 and Q3, so the latest figure is very close to the C$68.8 billion in the second half of last year.

These sources of weakness appear to be temporary adjustments to outsized gains earlier. But before dismissing them as mere jiggles in numbers, it gives us pause that the other compilation of Canada's GDP, the industrial product breakdown calculated monthly, showed an outright contraction in September of 0.3%. So the economy ended the quarter on a down note, not a very promising position.

SAAR, Bil.Chn97C$
Q3 2006 Q2 2006 Q1 2006 Year- Ago 2005 2004 2003
Total GDP 1192.2 1187.1 1181.1 1162.8 1157.7 1124.7 1088.8
 % Chg, AR 1.7 2.0 3.8 2.5 2.9 3.3 1.8
Personal Consumption 4.2 3.8 4.8 4.1 3.9 3.3 3.0
Gov't Consumption 0.7 4.9 3.3 3.3 2.7 3.0 3.5
Business Investment 1.2 1.6 10.3 5.0 7.1 8.6 6.6
Net Exports (Bil.Chn.97C$) -23.3 -22.5 -10.3 -- -2.0 +19.8 +30.6
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