Monday, October 13, 2014

Canadai's GDP Growth in July: Zero. What Does tt Mean to Ontario?

This National Post article has the news that Canada's GDP growth was zero in July:

"The flat reading in gross domestic product was the weakest performance since December 2013, when the economy fell by 0.4%, Statistics Canada said Tuesday. Economists had expected GDP to expand by 0.2% in July.

The economy grew by a modest 0.3% in June and by 0.5% in May. On a quarterly basis, the economy posted gains of 0.9% between January and March and 3.1% in the second three-month period. Many forecasters had been looking for growth of 3% or slightly lower in the third quarter."

What's interesting for Ontario for the first quarter is that Quebec reported a strangely high 2.3% number, while one would assume that Alberta and Saskatchewan would report higher numbers than 0.9% just based on population growth alone. Ontario hasn't reported its GDP number for the first quarter yet, but some province has to be below the 0.9% number and dragging it down. This part of the article would suggest that manufacturing and auto manufacturing isn't going to do too much for Ontario's economy in the second half of the year:

"On Tuesday, Statistics Canada said the manufacturing sector, which has struggled to gain momentum, advanced by 1% in July, supported by increases in transportation equipment, computer and electronics products. Construction, professional services and retail trade also showed slight increases during the month.

“We still have concerns about the manufacturing sector. Admittedly, production increased in July, but growth has been bolstered in recent months by a weather-related rebound in the auto sector,” said David Madani, Canadian economist for Capital Economics.

“Given the lack of investment in this large sector and increasingly intense competition from the southern U.S. and Mexico, Canadian auto production won’t be a positive force over the second half of the year.”"

This is an important issue for Ontario. Even with car sales picking up in the US, Ontario doesn't make nearly as many cars as before the recession of 2008. Ontario won't benefit as much.

With regards to GDP in the third quarter:

"In its last quarterly Monetary Policy Report, released in July, the Bank of Canada predicted a third-quarter advance in GDP of 2.3%, followed by 2.4% growth in the final quarter. The bank will publish its next MPR on Oct. 22."

That seems high to me, especially with all the events currently going on, although the Canadian dollar continuing to tank certainly should aid the Canadian and Ontario GDP numbers a bit. Note that the Ontario Finance Ministry is predicted Ontario's 2014 GDP to come in at 2.1%.

The Financial Post has this article on the August trade numbers for Canada, which adds some context for third quarter GDP predictions:

"August was expected to be another healthy month for exports — coming after a $2.2-billion surplus in the previous month. Instead, the value of goods and services delivered to global markets fell into the red by the tune of $610-million, as exports declined 2.5% and imports rose 3.9%.

Forecasters had called for a surplus of $1.6-billion in August — following the July tally, which Statistics Canada on Friday revised slightly downward from its previous estimate of $2.58-billion."

Obviously exports tanking isn't good for GDP and one has to think that the August numbers will end up hurting the third quarter GDP numbers for both Canada and Ontario. The composition of the export drop (autos) is a problem for Ontario:

"In Friday’s report, Statistics Canada said the value of exports fell by $44.2-billion in August, led by declines in shipments of vehicles and auto parts, as well as energy products. Imports, meanwhile, rose by $44.8-billion during the month."

So where do we end up for third quarter GDP for Canada and Ontario?

"However, David Madani, at Capital Economics, said “the fact that most export categories showed small declines, or flat growth, was a bit disconcerting.”

“This supports our view that, after stalling in July, GDP probably only grew modestly in August,” he said.

“This is further evidence that the consensus estimate for third-quarter growth of 3% is too high,” with Capital forecasting 2.4% annualized growth between July and September."

I'm still hoping for Ontario to release the first quarter GDP number. It would provide a lot of clarity.

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