Canada: Economic growth likely decelerated in Q4, following the big Q3 rebound – BMO CM

Benjamin Reitzes, Senior Economist at BMO Capital Markets, anticipates that the Canadian economic growth likely decelerated in Q4, following the big Q3 rebound from the wildfires.

Key Quotes

“Our call for 2% GDP growth is largely driven by a double-digit drop in imports, in part due to a reversal from the oil platform-related bump in the prior quarter. Trade is expected to add about 4 ppts to growth, after contributing 1.2 ppts to the headline in Q3. Note that despite all the ink spilled over trade, it has added to growth in 8 of the prior 12 quarters. Government spending is expected to improve following Q3’s surprise contraction, but should really ramp up in 2017 as more infrastructure projects get underway. Consumption growth looks to be relatively restrained in the quarter, but still up at a more than 2% pace for all of 2016—pretty impressive given all the haranguing about household debt.”

“While the worst has likely passed for business investment, similar to imports, Q4 suffered from a reversal from the oil platform purchase in Q3. Given the big boost from trade, there’s modest upside risk to our 2% growth forecast for Q4. Our call would peg 2016 growth at 1.3%, an improvement from 2015’s 0.9%, but still well short of our call for 2% in 2017.”

“December GDP is expected to slow a bit, but still come in at a solid +0.2%. Our models suggest we’ll get a strong 0.2%, so positive surprises in a couple of sectors could push the gain to 0.3%. Manufacturing and wholesale activity were solid, while more seasonal weather points to a chunky rebound for utilities. Retail sales were a definite soft spot, but given the seasonality issues, we’d avoid dwelling on that weakness. As always, mining, oil & gas is a wildcard, as strength in November drove the better headline. Our call for a solid 0.2% rise would suggest there’s good momentum heading into Q1, pointing to upside to our current 1.8% forecast.”