Canada still lagging behind U.S. growth, and at this point, we’re nowhere close to catching up

OTTAWA – Divergence in United states economies shows little manifestation of narrowing.  

While the U.S. economy performed much better than expected in the final quarter of 2015, Canada’s output likely slowed due to the ongoing drag from low oil prices and weak business investment.

On Friday, revised U.S. data showed that country still performed much better than expected in the final quarter of 2015, managing revised annualized growth of one percent, up from the previous estimate of 0.7 per cent, and pointing to an improving pace for gross domestic product in the first quarter of the year.

Revisions to U.S. GDP through the Commerce Department now put overall growth in 2015 at 2.4 percent.

That is a hard act to follow for Canada, in which the economy managed only 0.3 per cent growth in November, coming after a flat reading in October and a 0.5 percent decline in September.

December and fourth-quarter GDP data will be released on Tuesday, using the consensus of annualized quarterly growth being about 0.3 per cent, “so, hardly any growth,” said Douglas Porter, chief economist at BMO Capital Markets.

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As for Canada’s overall 2015 tally, forecasters aren’t anticipating more than one percent growth, and just slightly better output its this season – even with federal government stimulus spending and tax cuts for middle-class families.

Most estimates put Canadian GDP growth at 0.5 per cent within the first quarter of 2016.

“The story there is that we believe we will see another big stop by business capital spending. This is where the weakness is originating from,” said BMO’s Porter.

Meanwhile, the U.S. economy has become forecast to grow by as much as 2.5 per cent within the first quarter of 2016.

“(But) we remain firm in our opinion that the U.S. economy continues to grow, with reduced slack continuing to improve inflationary pressures and providing sufficient evidence to Federal Reserve officials to tighten monetary policy twice more later this season,” said Fotios Raptis, senior economist at TD Economics.

The recent financial market turmoil “poses a danger of a broader slowdown in global economic growth than some of the backward-looking economic indicators are dictating,” Raptis said.

In December of this past year, the Fed raised its key lending level a quarter point to between 0.25 and 0.5 percent, after sitting tight since 2008. The Bank of Canada moved well before that – in January 2015 – however in the opposite direction, cutting its trendsetting interest rate 0.75 per cent in one per cent, where it absolutely was since September 2010.

The Bank of Canada’s next rate decision occurs March 9.

But most analysts don’t anticipate any change at that meeting, given the federal government’s 2016-17 budget won’t be tabled until March 22.

However, the bank’s April 16 decision, that will accompany its forward-looking quarterly Monetary Policy Report, often see alterations in the outlook by policymakers around the economy and the possible impact of Ottawa’s spending plans.

Financial Post

gisfeld@natinalpost.com

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