U.S. economy slowed a bit in Q4 last year

Highlights

• Growth in the OECD is becoming more widespread, with output on the rise not just in the U.S. and the U.K., but also in Japan and the Eurozone. Emerging economies are also on the upswing, boosted by cheap energy and mild inflation which is allowing central banks, such as those in India and China, to lower interest rates. The ingredients are in place for global growth to pick up to 3.5% this year.

• The U.S. economy slowed a bit in Q4 last year, although that should not be surprising after two very strong quarters. The softness seems to be extending to early 2015 partly due to bad weather. Rising inventories in the prior quarter may also be partly responsible for the slow start to Q1. But as was the case last year, we expect the world’s largest economy to put behind it the winter blues and bounce back with the help of consumer strength and business investment spending. We continue to expect U.S. GDP growth of 3.3% this year.

• The energy price slump is already taking its toll on the Canadian economy as evidenced by the deceleration in GDP and employment growth in the last quarter of 2014. The economy seems destined for sub-2% growth in the first half this year as investment in the oil patch dries up, fiscal policy is tightened particularly in provinces, housing softens, and weak employment restrains consumption. Fortunately, exports will provide some offset thanks to strengthening U.S. demand and a much more competitive currency. Considering how growth, and hence employment, will be dependent on trade, the Bank of Canada will maintain its loose stance on monetary policy as to keep the loonie grounded.