Economy slows, things expected to get worse before they get better

Canada’s economy experienced its slowest growth in more than two years at the end of 2018. GDP grew a meagre 0.4% annually in the fourth quarter of 2018. This was less than half of what the market was expecting at 1.0%.

“The headline GDP readings were no doubt disappointing, although they are far from a shock,” said Douglas Porter, chief economist at BMO public markets in a note to investors. “Unfortunately, the details were arguably even worse, including revisions to the first half of last year as well as a deep dive in investments.”

Porter highlights that oil production cuts have caused the economy to go into a lengthy hibernation over the last quarter of 2018 and the first quarter of 2019. The only thing preventing the economy from entering negative terrain was a large growth in inventories and a decline in imports.

Shrinking consumer demand also contributed to the slowing growth, contracting by 1.5%. Brian DePratto, senior economist for TD says that this was the second consecutive contraction in a year of long-pattern deceleration.

The economy ultimately grew 1.8% in 2018, somewhat less than the 2% that was expected. Growth estimates were also downgraded 0.7 percentage points over the first and second quarters of 2018.

The full growth rate for the year was much slower than 2017’s 3% growth and the U.S.’s 2.9% growth in 2018.

“Canada will do well to even match last year’s soggy pace in 2019, given the weak starting point,” said Porter.

One bright spot for DePratto is an increasing investment in intellectual property products, however that came with the second significant consecutive decline in business investment falling nearly 11% for the second quarter in a row.

"Brace yourself,” said DePratto in a note to investors. “Things are probably going to get worse before they get better.”