The Canadian Economy Begins to Show Growth

Canada's Real Gross Domestic Product rose 0.40% on an annual rate basis in the third quarter, its first increase after three quarters of decline. The annual rate of rise was smaller than the 2% the Bank of Canada had predicted a month or so ago and smaller than more recent consensus estimate of 1.0%. Canada's annual rate of growth in the third quarter was also below those of the Mexico and the United States, its NAFTA partners, as can be seen in the first chart.

The annual rates of change of the major components of real GDP are shown in the table below. Private consumption showed its first increase in the second quarter and has continued to increase in the third quarter. Private fixed investment and exports have had their first increases in the third quarter. Canada's stimulus programs are reflected in the increases in Government consumption and fixed investment over the past several quarters.

The dynamics of the change in Canada's third quarter GDP is best seen by looking at the contribution (the weighted percent changes) of the various components of GDP to total growth. The quarterly increase in GDP in the third quarter was 0.088%. Private consumption contributed .448 points; private fixed investment,.246; inventories, .229; government spending on goods and services, .265; government fixed investment, .218 and government inventories .001. Exports contributed .998. These positive contributions amounted to 2.405 points. They were, however, offset by the 2.316 point negative contribution of imports. Part of the rise in imports was due to the increase in private and government fixed investment. It has been estimated that Canadian businesses import more than 70% of their spending on plant and equipment.